SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1999
Commission File No. 1-14126
UNIDIGITAL INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3856672
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
229 West 28th Street, New York, New York 10001
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(Address of Principal Executive Offices)
(212) 244-7820
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(Issuer's Telephone Number,
Including Area Code)
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes: X No:
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State the number of shares outstanding of each of the Issuer's classes of
common stock, as of March 31, 1999:
Class Number of Shares
- ----- ----------------
Common Stock, $.01 par value 5,297,248
Transitional Small Business Disclosure Format:
Yes: No: X
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UNIDIGITAL INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements...........................................1
CONSOLIDATED BALANCE SHEETS
as at February 28, 1999 (unaudited)
and August 31, 1998 (audited)......................................2
CONSOLIDATED INCOME STATEMENTS
For the Three Months and Six Months Ended
February 28, 1999 and February 28, 1998
(unaudited)........................................................3
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended
February 28, 1999 and February 28, 1998
(unaudited)........................................................4
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (unaudited).............................................5
Item 2. Management's Discussion of Financial Condition and
Results of Operation...........................................12
General........................................................12
Results of Operations..........................................12
Liquidity, Capital Resources and Other Matters.................15
Item 3. Quantitative and Qualitative Disclosure
About Market Risk..............................................19
PART II OTHER INFORMATION
Item 1. Legal Proceedings..............................................20
Item 2. Changes in Securities and Use of Proceeds......................20
Item 3. Default Upon Senior Securities.................................21
Item 4. Submission of Matters to a Vote of Security Holders............21
Item 5. Other Information..............................................22
Item 6. Exhibits and Reports on Form 8-K...............................22
SIGNATURES...................................................................23
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<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
1999 1998
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(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................... $ 453,000 $ 287,000
Accounts receivable (less allowance for doubtful
accounts of $723,000 and $581,000 at
February 28, 1999 and August 31, 1998, respectively)......... 24,396,000 16,917,000
Deferred financing costs, net.................................. 2,528,000 1,013,000
Prepaid expenses............................................... 5,490,000 2,727,000
Other current assets........................................... 2,880,000 3,360,000
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Total current assets....................................... 35,747,000 24,304,000
Property and equipment, net....................................... 16,926,000 14,591,000
Intangible assets, net............................................ 58,283,000 28,107,000
Other assets...................................................... 755,000 313,000
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Total assets............................................... $ 111,711,000 $ 67,315,000
============= =============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses.......................... $ 10,130,000 $ 8,571,000
Current portion of capital lease obligations................... 2,418,000 1,935,000
Current portion of long-term debt.............................. 65,000,000 3,610,000
Income taxes payable........................................... 1,790,000 887,000
Deferred income taxes.......................................... 26,000 249,000
Loans and notes payable to stockholders........................ 437,000 155,000
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Total current liabilities.................................. 79,801,000 15,407,000
Capital lease obligations, net of current portion................. 4,757,000 2,830,000
Long-term debt, net of current portion............................ 2,005,000 33,978,000
Deferred income taxes............................................. 807,000 500,000
Loans and notes payable to stockholders, net of current portion... 208,000 207,000
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Total liabilities.......................................... 87,578,000 52,922,000
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STOCKHOLDERS' EQUITY
Preferred stock -- authorized 5,000,000 shares,
$.01 par value each; none issued or outstanding................ -- --
Common stock -- authorized 10,000,000 shares,
$.01 par value each; 5,247,248 and 3,902,643 shares
issued and outstanding at February 28, 1999 and
August 31, 1998, respectively.................................. 52,000 39,000
Additional paid-in capital........................................ 19,069,000 9,865,000
Retained earnings................................................. 5,197,000 4,374,000
Cumulative foreign translation adjustment......................... (185,000) 115,000
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Total stockholders' equity................................. 24,133,000 14,393,000
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Total liabilities and stockholders' equity................. $ 111,711,000 $ 67,315,000
============= =============
</TABLE>
The Notes to Consolidated Financial Statements are made a part hereof.
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UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
CONSOLIDATED INCOME STATEMENTS
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(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED, SIX MONTHS ENDED,
---------------------------- ------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Net sales................................... $ 18,445,000 $ 9,556,000 $34,356,000 $19,256,000
------------ ----------- ----------- -----------
EXPENSES
Cost of sales............................... 8,587,000 5,275,000 17,310,000 10,300,000
Selling, general and
administrative expenses ................. 7,185,000 3,333,000 12,574,000 6,747,000
Restructuring expenses...................... -- -- 196,000 --
----------- ----------- ----------- -----------
Total operating expenses.................... 15,772,000 8,608,000 30,080,000 17,047,000
----------- ----------- ----------- -----------
Income from operations...................... 2,673,000 948,000 4,276,000 2,209,000
Interest expense............................ (1,634,000) (366,000) (2,801,000) (749,000)
Interest expense - deferred financing costs. (135,000) (138,000) (191,000) (276,000)
Interest and other expenses................. (48,000) (125,000) 222,000 (86,000)
------------ ------------ ----------- ------------
Income before income taxes.................. 856,000 319,000 1,506,000 1,098,000
Provision for income taxes.................. 402,000 127,000 682,000 400,000
----------- ----------- ----------- -----------
Net income..................................... $ 454,000 $ 192,000 $ 824,000 $ 698,000
=========== =========== =========== ===========
Net income per share available to
common stockholders:
Basic....................................... $ 0.09 $ 0.06 $ 0.16 $ 0.22
=========== =========== =========== ===========
Diluted..................................... $ 0.08 $ 0.06 $ 0.16 $ 0.20
=========== =========== =========== ===========
Shares used to compute net income per share:
Basic....................................... 5,247,248 3,246,301 5,024,420 3,244,797
=========== =========== =========== ===========
Diluted..................................... 5,381,070 3,380,891 5,124,166 3,436,008
=========== =========== =========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are made a part hereof.
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UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
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(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED,
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FEBRUARY 28, FEBRUARY 28,
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net income......................................................... $ 824,000 $ 698,000
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization............................... 3,509,000 1,632,000
Provision for deferred income taxes......................... 57,000 19,000
Provision for bad debts..................................... 233,000 (9,000)
Gain on sale of assets...................................... (313,000) --
Changes in assets and liabilities:
Accounts receivable......................................... (3,585,000) (2,338,000)
Prepaid expenses and other current assets................... (2,199,000) (959,000)
Other assets................................................ (282,000) 71,000
Accounts payable and accrued expenses....................... (2,383,000) (49,000)
Income taxes payable........................................ 485,000 340,000
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Net cash used in operating activities.............................. (3,654,000) (595,000)
------------ ------------
INVESTING ACTIVITIES
Proceeds of sale of fixed assets................................... 941,000 --
Additions to property and equipment................................ (711,000) (599,000)
Business acquisitions.............................................. (24,789,000) --
----------- -----------
Net cash used in investing activities.............................. (24,559,000) (599,000)
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FINANCING ACTIVITIES
Net proceeds from bank borrowings.................................. 29,751,000 857,000
Payments of capital lease obligations.............................. (1,157,000) (933,000)
Payments of long-term debt......................................... (208,000) --
Stockholder loans.................................................. (50,000) --
Common stock issued................................................ 92,000 1,000
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Net cash provided by (used in) financing activities................ 28,428,000 (75,000)
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Effect of foreign exchange rates on cash........................... (49,000) 12,000
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Net increase (decrease) in cash and cash equivalents............... 166,000 (1,257,000)
Cash and cash equivalents at beginning of period................... 287,000 3,202,000
----------- -----------
Cash and cash equivalents at end of period......................... $ 453,000 $ 1,945,000
=========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid...................................................... $ 3,385,000 $ 370,000
=========== ===========
Income taxes paid.................................................. $ 192,000 $ 115,000
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Noncash transactions:
Equipment acquired under capital lease obligations................. $ 2,597,000 $ 407,000
=========== ===========
Value of warrants issued-business acquisitions..................... $ 931,000 $ 100,000
=========== ===========
Value of warrants-additional financing (revised)................... $ 308,000 $ --
=========== ===========
Business acquisitions (net of liabilities of $5,010,000)........... $ 2,466,000 $ --
=========== ===========
Stock issued for business acquisitions............................. $ 7,886,000 $ --
=========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are made a part hereof.
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UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
NOTE A - BASIS OF PRESENTATION:
The information presented for February 28, 1999, and for the three-month
and the six-month periods ended February 28, 1999 and February 28, 1998, is
unaudited, but, in the opinion of Unidigital Inc., its wholly-owned subsidiaries
and its and their subsidiaries, affiliated companies and predecessors
(collectively, the "Company"), the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) which the Company considers necessary for the fair presentation of the
Company's financial position as of February 28, 1999 and the results of their
operations and their cash flows for the three-month and the six-month periods
ended February 28, 1999 and February 28, 1998.
The consolidated financial statements included herein have been prepared by
the Company in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These
consolidated financial statements should be read in conjunction with the
Company's audited financial statements for the year ended August 31, 1998, which
were included as part of the Company's Annual Report on Form 10-KSB.
The consolidated financial statements include the accounts of Unidigital
Inc. and its direct and indirect subsidiaries. All significant intercompany
balances have been eliminated.
Interim results are not necessarily indicative of results that may be
expected for the full fiscal year.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BUSINESS:
The Company is a leading service business within the graphic arts industry
that provides imaging, reproduction and integrated media solution services to
advertising agencies, retailers, corporations, marketing/communications firms,
publishers, government agencies and financial institutions in the New York City,
Boston, San Francisco and London markets. Through active cross-selling among its
three divisions, Unison, KWIK and Elements (collectively, the "Unidigital
Enterprise"), the Company provides imaging, reproductive and integrated media
solutions to each of the large format, digital prepress and digital printing
segments of the industry. Cross-selling among the Unidigital Enterprise offers a
total solution for customers, which the Company believes creates a distinct
advantage over competitors within the marketplace.
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UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
FOREIGN CURRENCY TRANSLATION:
The portion of the Company's financial statements relating to the Company's
United Kingdom operations are translated into United States Dollars using
period-end exchange rates ((pound)1.00 = $1.67 at August 31, 1998 and $1.60 at
February 28, 1999, respectively, for balance sheets accounts) and average
exchange rates ((pound)1.00 = $1.66 for the year ended August 31, 1998; and
$1.66 and $1.69 for the three months ended February 28, 1999 and February 28,
1998, respectively; and $1.66 and $1.69 for the six months ended February 28,
1999 and February 28, 1998, respectively for income statement accounts). The
translation difference is reflected as a separate component of stockholders'
equity.
EARNINGS PER SHARE:
The following table sets forth the computation of basic and dilutive
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED, SIX MONTHS ENDED,
---------------------------------- ----------------------------------
FEBRUARY 28, FEBRUARY 28,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings per
share-net income available for common
stockholders............................... $ 454,000 $ 192,000 $ 824,000 $ 698,000
============ ============ ============ ============
Denominator:
Denominator for basic earnings per share-
weighted average shares.................... 5,247,248 3,246,301 5,024,420 3,244,797
Effect of dilutive securities:
Stock options.............................. 17,180 15,909 11,534 32,674
Warrants................................... 116,642 118,681 88,212 158,537
----------- ----------- ----------- -----------
Denominator for diluted earnings per share-
adjusted weighted-average shares and
assumed conversions........................ 5,381,070 3,380,891 5,124,166 3,436,008
=========== =========== =========== ===========
</TABLE>
The following securities have been excluded from the dilutive per share
computation as they are antidilutive:
<TABLE>
<CAPTION>
THREE MONTHS ENDED, SIX MONTHS ENDED,
--------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28,
1999 1998 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stock Options................................. 559,798 178,917 559,798 132,918
Warrants...................................... 342,000 117,000 342,000 117,000
</TABLE>
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UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
NOTE C - STOCK OPTION PLANS:
On January 4, 1999, the Company granted options to purchase 2,500 shares of
its Common Stock to each of David Wachsman and Harvey Silverman, at an exercise
price of $5.00 per share.
On January 12, 1999, the Company granted options to purchase 75,000 shares
of its Common Stock to Larry Wooddell, Senior Vice President, Corporate
Development of the Company, at an exercise price of $4.00 per share.
NOTE D - LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
FACILITY
AMOUNT AMOUNT OUTSTANDING
FEBRUARY 28, FEBRUARY 28, AUGUST 31,
1999 1999 1998
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Credit facilities in the United Kingdom; interest at either the bank's
overdraft rate plus 2% or 2.5%, including a temporary facility of
approximately 450,000 (pound) ($720,000) renewable April 30, 1999;
facility amount is approximately(pound)2,650,000 ($4,248,000) $4,248,000 $2,394,000 $2,135,000
Term loan, matures in March 2003; payable in sixteen quarterly
installments ranging from $960,000 to $1,920,000, commencing in June
1999, with a balloon payment of $8,960,000 in March 2003, plus
interest at the Base Rate or at the Eurodollar Rate, as defined,
plus an Applicable Margin, as defined, ranging from 0.75% to 3.0% 32,000,000 32,000,000 25,000,000
Revolving line of credit; matures in March 2003, interest at the Base
Rate or at the Eurodollar Rate, as defined, plus an Applicable
Margin, as defined, ranging from 0.75% to 3.0% 15,000,000 14,935,000 8,435,000
Acquisition line of credit; matures in March 2003, payable in eleven
quarterly installments of 5.0% of the outstanding balance in March
2000 commencing in June 000 and one installment of 45.0% of the
outstanding balance in March 2000, plus interest at the Base Rate or
at the Eurodollar Rate, as defined, plus an Applicable Margin, as
defined, ranging from 0.75% to 3.0% 5,000,000 5,000,000
Subordinated loan matures in March 2004; base interest of 12 1/2%;
plus 0.25% the first day after the first anniversary of the Note;
plus 0.25% following the last day of each 90 day period until payment
in full 10,000,000 10,000,000
Installment note due seller of Elements (SF); payable in eight
quarterly installments of $11,600, including interest at 6.0% -- 11,000
Installment note due seller of Unison (MA); matures in January 1999,
payable in two annual installments of $75,000 including interest at
8.0% 75,000 75,000
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UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
Notes payable for certain equipment, maturing on dates between
October, 1998 and September, 2003, payable in monthly installments of
$22,000 until October 1998 and $14,000 thereafter, including interest
at 8.54% and 8.4%, respectively. 530,000 618,000
Treasury loan facility in United Kingdom; matures in July 2001,
payable in monthly installments of $19,000 plus interest of LIBOR,
as defined, plus the Banks Margin of 2.4% 517,000 651,000
Note payable, payable in monthly installments of approximately $1000
including interest at 10.35% 12,000 17,000
Investment fee due May 2001, senior subordinated note 1,000,000 --
Installment note due seller of Kwik International; matures in April
2001, payable in thirty-six monthly installments of approximately
$21,000 including interest at 5.7% 542,000 646,000
----------------- ---------------
67,005,000 37,588,000
Less current portion 65,000,000 3,610,000
----------------- ---------------
$ 2,005,000 $ 33,978,000
================= ===============
</TABLE>
During the first quarter of fiscal 1999 the Company amended its existing
bank financing facilities with Canadian Imperial Bank of Commerce ("CIBC"). As a
result, the Company has credit facilities with CIBC in the aggregate amount of
$52,000,000, consisting of a: (i) $32,000,000 term loan; (ii) $15,000,000
revolving line of credit facility which is available for working capital
purposes; and (iii) $5,000,000 credit facility which is available for corporate
acquisition purposes. Such credit facilities are guaranteed by the Company's
United States subsidiaries, including subsidiaries currently owned and
subsequently acquired. In addition, the Company pledged all of its equity
interests in its United States subsidiaries, including subsidiaries currently
owned and subsequently acquired, and two-thirds of its equity interests in its
wholly-owned United Kingdom subsidiary as collateral for such credit facilities.
Interest under such credit facilities is, at the Company's option, at the Base
Rate or at the Eurodollar Rate, as defined, plus an Applicable Margin, as
defined, ranging from 0.75% to 3.0% depending on the Company's consolidated debt
to earnings ratio and the type of loan. As of February 28, 1999, the Company had
an outstanding balance of $32,000,000 under the term loan, $14,935,000 under the
revolving credit facility and $5,000,000 under the acquisition loan.
The credit facilities contain covenants which require the Company to
maintain certain earnings and debt to earnings ratio requirements based on the
combined operations of the Company and its subsidiaries. The Company's agreement
with CIBC restricts the Company's ability to pay dividends. The credit
facilities are secured by a first priority lien on all of the assets of the
Company and its subsidiaries.
The Company has not met a financial covenant under its credit facilities
with CIBC and has requested a waiver of such covenant from CIBC. At February 28,
1999, the credit facilities have been classified as a short-term liability until
such waiver is obtained. The Company believes that CIBC will grant such waiver,
however, there can be no assurance that such waiver will be obtained.
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UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
In addition, the Company has received a commitment from other lenders to
replace the existing CIBC credit facilities. Such commitment is initially for
$65,000,000 of senior debt with a potential increase to $100,000,000 of senior
and subordinated debt. There can be no assurance, however, that such new
financing agreements will be consummated by the Company.
In November 1998, the Company borrowed a principal amount of $10,000,000
pursuant to a subordinated unsecured loan (the "Subordinated Loan"). The
Subordinated Loan matures on March 31, 2004 and bears interest at a rate per
annum equal to the sum of (i) 12.50% plus (ii) an additional percentage amount
equal to 0.25% commencing on November 30, 1999 and increasing by 0.25% following
the last day of each 90-day period thereafter. Until November 30, 1999, at the
option of the lender, interest is payable in additional notes, Common Stock of
the Company or warrants to purchase Common Stock of the Company. Thereafter,
interest is payable in either additional notes or cash, depending on certain
coverage ratios and, in the case of cash interest payments, the approval of the
Bank. The Company will incur an additional premium of 5.0% on any prepayments of
the Subordinated Loan made prior to November 30, 1999. Such additional premium
will be reduced by 100 basis points on December 1, 1999 and shall be reduced by
such amount on each December 1st thereafter until December 1, 2003. In
connection with the Subordinated Loan, the Company issued ten-year warrants to
the lender to purchase 440,000 shares of the Company's Common Stock at an
exercise price not to exceed $5.00 per share. In the event the Company has not
paid the loan in full by November 30, 1999 (subject to extension in certain
instances), the Company will issue ten-year warrants to the lender to purchase
an additional 200,000 shares of the Company's Common Stock at an exercise price
not to exceed $5.00 per share. In the event the Subordinated Loan has not been
paid in full by May 31, 2001, the exercise price of such warrants shall be
reduced by $1.00 per share and, on each anniversary of such date, such exercise
price shall be reduced by an additional $1.00 per share. In addition, subject to
certain limitations, the Company granted registration rights, including "demand"
registration rights, to such lender.
The warrants issued in connection with the Subordinated Loan, which were
deemed to have a value of approximately $308,000, have been recorded as deferred
financing costs, and are being amortized on a straight-line basis over
approximately five years.
The Company's credit facility with its London bank provides for combined
lines of credit of (pound)2,650,000 (approximately $4,248,000) for working
capital for its United Kingdom operations. Such credit facility was increased
from (pound)1,400,000 (approximately $2,308,000) on May 13, 1998. These lines of
credit renewed annually and bear interest at 2.0% or 2.5% over the bank's Base
Rate, as defined. In addition, the Company is required to pay a service charge
equal to 0.2% of invoice value. These lines of credit contain covenants which
require the Company's United Kingdom subsidiaries to maintain a minimum net
worth of (pound)500,000, limit borrowings up to specified amounts of accounts
receivable aged 120 days or less and are guaranteed by the Company for the
principal amount of up to (pound)500,000. Amounts outstanding are collateralized
by substantially all of the Company's United Kingdom assets. As of February 28,
1999, the Company had an outstanding balance of (pound)1,494,000 (approximately
$2,394,000) under its United Kingdom credit facility.
In connection with its acquisition of certain of the assets (the "Five Star
Acquisition") of Five Star Finishers, Ltd., a United Kingdom corporation ("Five
Star"), the Company entered into a three-year term loan of (pound)400,000
(approximately $660,000) with its London bank. Such term
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<PAGE>
loan bears interest at 2.4% over the bank's Base Rate, as defined, and contains
covenants which require the Company to maintain certain debt to earnings ratios
and Net Tangible Assets, as defined, and limits borrowings to 75% of Net
Tangible Assets. The Company's obligations under the term loan are guaranteed by
its United Kingdom subsidiaries. As of February 28, 1999, the Company had an
outstanding balance of (pound)322,000 (approximately $517,000) under the term
loan.
NOTE E - PRO FORMA FINANCIAL INFORMATION:
The following supplemental pro forma information is presented as if the
Company had completed the Kwik Acquisition, the Mega Art Acquisition, the Zazula
Acquisition and the SuperGraphics Acquisition (each as hereinafter defined) as
of September 1, 1998 and 1997, respectively:
SIX MONTHS ENDED,
---------------------------------
FEBRUARY 28,
1999 1999
---------------------------------
Net sales............................... $ 37,523,000 $28,225,000
Income from operations.................. 4,332,000 3,845,000
Net income.............................. 427,000 1,846,000
Net income per share - basic............ 0.08 0.40
Net income per share - diluted.......... 0.08 0.37
NOTE F - SUBSEQUENT EVENTS:
On April 7, 1999, the Company, through its wholly-owned subsidiary Unison
(NY), Inc., a Delaware corporation ("Unison (NY)"), consummated the acquisition
(the "X+C Acquisition") of substantially all of the assets of Peter X(+C)
Limited, a New York corporation ("X+C"), located in New York City. The purchase
price included an initial cash payment of $70,000 and the issuance of 40,000
shares of restricted Common Stock of the Company to the sole shareholder of X+C.
In addition, the purchase price includes a deferred cash payment of $100,000
payable on April 1, 2000, and an earn-out payment of up to $1,000,000 in cash or
in some combination of cash and restricted Common Stock of the Company in the
event X+C achieves certain financial performance objectives.
On March 31, 1999, the Chapter 7 Trustee (the "Trustee") for Cardinal
Communications Group, Inc. ("Cardinal") filed an adversary proceeding against
the Company in Cardinal's Chapter 7 bankruptcy proceeding pending in the United
States Bankruptcy Court for the Southern District of New York. The Trustee is
seeking recovery of funds alleged to be the property of the bankruptcy estate
under various bankruptcy code provisions. In addition, the Trustee is seeking a
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<PAGE>
declaratory judgment regarding the bankruptcy estate's entitlement to a portion
of the proceeds from the sale of real property acquired by the Company pursuant
to that certain Asset Purchase Agreement dated as of August 2, 1996 (the
"Cardinal Purchase Agreement"). The Company believes that the bankruptcy estate
is not entitled to any additional monies under the Cardinal Purchase Agreement.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATION.
GENERAL
The Company is a leading provider of imaging, reproduction and integrated
media solution services to advertising agencies, retailers, corporations,
marketing/communications firms, publishers, government agencies and financial
institutions in the New York City, Boston, San Francisco and London markets.
Through active cross-selling among the Unidigital Enterprise, the Company
provides imaging, reproductive and integrated media solutions to each of the
large format, digital prepress and digital printing segments of the industry.
Cross-selling among the Unidigital Enterprise offers a total media solution for
customers, which the Company believes, creates a distinct advantage over
competitors within the marketplace.
The statements contained in this Quarterly Report on Form 10-Q that are not
historical facts are forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) that involve risks and
uncertainties. Such forward-looking statements may be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve risks and uncertainties. From time to time, the Company or its
representatives have made or may make forward-looking statements, orally or in
writing. Such forward-looking statements may be included in various filings made
by the Company with the Securities and Exchange Commission (the "SEC"), or press
releases or oral statements made by or with the approval of an authorized
executive officer of the Company. These forward-looking statements, such as
statements regarding anticipated future revenues, capital expenditures, Year
2000 compliance and other statements regarding matters that are not historical
facts, involve predictions. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Potential risks and uncertainties that
could affect the Company's future operating results include, but are not limited
to: (i) economic conditions, including economic conditions related to the
digital print industry; (ii) the availability of equipment from the Company's
vendors at current prices and levels; (iii) the intense competition in the
markets for the Company's products and services; (iv) the Company's ability to
integrate acquired companies and businesses in a cost-effective manner; (v) the
Company's ability to effectively implement its branding strategy; (vi) the
Company's ability to obtain additional financing at favorable rates; and (vii)
the Company's ability to develop, market, provide, and achieve market acceptance
of new service offerings to new and existing clients.
RESULTS OF OPERATIONS
The consolidated financial information includes both the Company's United
States operations and its United Kingdom operations. On March 25, 1998 the
Company acquired substantially all of the assets of Kwik International, Ltd.
(the "Kwik Acquisition"). As a result of such acquisition the Company has
expanded its color separation and large format printing services in the New York
and surrounding area. In July 1998, the Company consummated the Five Star
Acquisition in the United Kingdom. On September 2, 1998, the Company consummated
the Mega Art Acquisition (the "Mega Art Acquisition") resulting in the expansion
of its wide format,
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digital prepress and printing services. On October 30, 1998, the Company
consummated the Zazula Acquisition (the "Zazula Acquisition") resulting in the
expansion of its retouching and prepress services, primarily to advertising
agencies. On November 30, 1998, the Company completed the SuperGraphics
Acquisition (the "SuperGraphics Acquisition") resulting in the expansion of its
large format services. Such acquisitions have been accounted for under the
purchase method of accounting and, therefore, results of operations from such
acquisitions are included in the Company's consolidated financial statements
from the date of the respective acquisition.
THREE MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 28, 1998
----------------------------------------------------------
NET SALES. Net sales for the three months ended February 28, 1999 ("Second
Quarter of Fiscal 1999") increased by 93%, or $8,889,000, to $18,445,000 from
$9,556,000 for the three months ended February 28, 1998 ("Second Quarter of
Fiscal 1998"). Net sales for the Company's United States operations increased by
185%, or $9,883,000, from $5,346,000 in the Second Quarter of Fiscal 1998 to
$15,229,000 in the Second Quarter of Fiscal 1999. This increase was attributable
primarily to an increase in net sales resulting from the Kwik Acquisition, the
Mega Art Acquisition, the Zazula Acquisition and the SuperGraphics Acquisition
and, to a lesser extent, an increase in net sales in the Company's other United
States subsidiaries. Net sales for the Company's United Kingdom operations
decreased by 24%, or $994,000, from $4,210,000 in the Second Quarter of Fiscal
1998 to $3,216,000 in the Second Quarter of Fiscal 1999. This decrease was
attributable primarily to a market-driven downturn in the financial printing
industry in the United Kingdom.
COST OF SALES. Cost of sales for the Second Quarter of Fiscal 1999
increased by 63% or $3,312,000, to $8,587,000 from $5,275,000 for the Second
Quarter of Fiscal 1998. As a percentage of net sales, cost of sales decreased as
a percentage of net sales from 55% for the Second Quarter of Fiscal 1998 to 47%
for the Second Quarter of Fiscal 1999. Such decrease was attributable primarily
to the change in product mix to include more large format services. Cost of
sales for the Company's United States operations increased as a percentage of
net sales from 49% for the Second Quarter of Fiscal 1998 to 44% for the Second
Quarter of Fiscal 1999. Such increase was attributable primarily to increased
costs incurred in connection with the Company's preparation for expansion of its
large format and digital print businesses. Cost of sales for the Company's
United Kingdom operations decreased as a percentage of net sales from 63% for
the Second Quarter of Fiscal 1998 to 56% for the Second Quarter of Fiscal 1999.
Such decrease was attributable primarily to the change in product mix to include
less digital print services as well as the reduced operations at the Company's
financial printing facility.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") increased 116%, or $3,852,000, from $3,333,000
for the Second Quarter of Fiscal 1998 to $7,185,000 for the Second Quarter of
Fiscal 1999. Such increase was attributable primarily to the increased level of
operations which resulted from the Kwik Acquisition, the Mega Art Acquisition,
the Zazula Acquisition and the SuperGraphics Acquisition and the hiring of
additional management and administrative personnel and costs associated with the
Company's acquisitions. As a percentage of net sales, SG&A increased from 35%
for the Second Quarter of
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Fiscal 1998 to 39% for the Second Quarter of Fiscal 1999. SG&A increased a
percentage of net sales as a result of increased salary expenses.
INCOME FROM OPERATIONS. Income from operations for the Second Quarter of
Fiscal 1999 increased by 182%, or $1,725,000, to $2,673,000 from $948,000 for
the Second Quarter of Fiscal 1998. Of this amount, $2,537,000 was contributed by
the Company's United States operations and $136,000 by the Company's United
Kingdom operations. This increase resulted from higher net sales offset in part
by higher operating costs associated with such net sales.
NET INTEREST EXPENSE. Net interest expense for the Second Quarter of Fiscal
1999 increased by 189%, or $1,188,000, to $1,817,000 from $629,000 for the
Second Quarter of Fiscal 1998. This increase resulted from increased borrowings
under the Company's credit facilities primarily relating to the Company's
acquisitions.
INCOME TAXES. Income taxes for the Second Quarter of Fiscal 1999 increased
by 217%, or $275,000, to $402,000 from $127,000 for the Second Quarter of Fiscal
1998.
NET INCOME. As a result of the factors described above, net income for the
Second Quarter of Fiscal 1999 increased by 136%, or $262,000, to $454,000 as
compared to net income of $192,000 for the Second Quarter of Fiscal 1998.
SIX MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 28, 1998
--------------------------------------------------------
NET SALES. Net sales for the six months ended February 28, 1999 increased
by 78%, or $15,100,000, to $34,356,000 from $19,256,000 for the six months ended
February 28, 1998. Net sales for the Company's United States operations
increased by 173%, or $17,454,000, from $10,110,000 in the six months ended
February 28, 1998 to $27,564,000 in the six months ended February 28, 1999. This
increase was attributable primarily to an increase in net sales resulting from
the Kwik Acquisition and the Mega Art Acquisition and, to a lesser extent, the
Zazula Acquisition, the SuperGraphics Acquisition and an increase in net sales
in the Company's other United States subsidiaries. Net sales for the Company's
United Kingdom operations decreased by 26%, or $2,354,000, from $9,146,000 in
the six months ended February 28, 1998 to $6,792,000 in the six months ended
February 28, 1999. This decrease was attributable primarily to a market-driven
downturn in the financial printing industry in the United Kingdom.
COST OF SALES. Cost of sales for the six months ended February 28, 1999
increased by 68%, or $7,010,000, to $17,310,000 from $10,300,000 for the six
months ended February 28, 1998. As a percentage of net sales, cost of sales
decreased from 53% for the six months ended February 28, 1998 to 50% for the six
months ended February 28, 1999. Cost of sales for the Company's United States
operations increased as a percentage of net sales from 46% for the six months
ended February 28, 1998 to 49% for the six months ended February 28, 1999. Such
increase was attributable primarily to increased costs incurred in connection
with the Company's preparation for expansion of its large format and digital
print businesses. Cost of sales for the Company's United Kingdom operations
decreased as a percentage of net sales from 61% for the six months ended
February 28, 1998 to 58% for the six months ended February 28, 1999. Such
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decrease was attributable primarily to the change in product mix to include less
digital print services as well as the reduced operations at the Company's
financial printing facility.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A increased by 86%, or
$5,827,000, from $6,747,000 for the six months ended February 28, 1998 to
$12,574,000 for the six months ended February 28, 1999. Such increase was
attributable primarily to the increased level of operations which resulted from
the Kwik Acquisition and the Mega Art Acquisition, and, to a lesser extent, the
Zazula Acquisition, the SuperGraphics Acquisition and the hiring of additional
management and administrative personnel and costs associated with the Company's
acquisitions. As a percentage of net sales, SG&A increased from 35% for the six
months ended February 28, 1998 to 37% for the six months ended February 28,
1999. SG&A increased a percentage of net sales as a result of increased salary
expenses.
RESTRUCTURING EXPENSES. During the six months ended February 28, 1999, the
Company continued to consolidate its United Kingdom financial printing
operations. As a result of such consolidation, the Company incurred
restructuring expenses of $196,000.
INCOME FROM OPERATIONS. Income from operations for the six months ended
February 28, 1999 increased by 94%, or $2,067,000, to $4,276,000 from $2,209,000
for the six months ended February 28, 1998. Of this amount, $4,003,000 was
contributed by the Company's United States operations and $273,000 by the
Company's United Kingdom operations. This increase resulted from higher net
sales offset in part by higher production costs associated with such net sales
and the restructuring expenses incurred in connection with the consolidation of
the Company's United Kingdom financial printing operations.
NET INTEREST EXPENSE. Net interest expense for the six months ended
February 28, 1999 increased by 149%, or $1,659,000, to $2,770,000 from
$1,111,000 for the six months ended February 28, 1998. This increase resulted
from increased borrowings under the Company's credit facilities primarily
related to the Company's acquisitions.
INCOME TAXES. Income taxes for the six months ended February 28, 1999
increased by 71%, or $282,000, to $682,000 from $400,000 for the six months
ended February 28, 1998.
NET INCOME. As a result of the factors described above, net income for the
six months ended February 28, 1999 increased by 18%, or $126,000, to $824,000 as
compared to net income of $698,000 for the six months ended February 28, 1998.
LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS
CASH FLOW. Net cash used in operating activities was $3,654,000 for the
first six months of fiscal 1999 and $595,000 for the first six months of fiscal
1998. Net cash used in investing activities for the acquisition of property and
equipment was $711,000 for the first six months of fiscal 1999 and $599,000 for
the first six months of Fiscal 1998. For the first six months of fiscal 1999 and
fiscal 1998, the Company acquired equipment under capital leases of $2,597,000
and $407,000, respectively, and made payments under capital leases of $1,157,000
and $933,000,
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respectively. Net bank borrowings provided funds of $29,543,000 for the first
six months of fiscal 1999 and $857,000 for the first six months of fiscal 1998.
BANK CREDIT FACILITIES. The Company has borrowing arrangements with
commercial banks in both New York and London. During the First Quarter of Fiscal
1999, the Company amended its existing credit facility with CIBC in the
aggregate amount of $52,000,000, which consist of a: (i) $32,000,000 term loan;
(ii) $15,000,000 revolving line of credit facility which is available for
working capital purposes; and (iii) $5,000,000 credit facility which is
available for corporate acquisition purposes. Such borrowings are guaranteed by
the Company's United States subsidiaries, including subsidiaries currently owned
and subsequently acquired. In addition, the Company pledged all of its equity
interests in its United States subsidiaries, including subsidiaries currently
owned and subsequently acquired, and two-thirds of its equity interests in its
wholly-owned United Kingdom subsidiary as collateral for such credit facilities.
Interest under such credit facilities is, at the Company's option, at the Base
Rate or at the Eurodollar Rate, as defined, plus an Applicable Margin, as
defined, ranging from 0.75% to 3.0% depending on the Company's consolidated debt
to earnings ratio and the type of loan. As of February 28, 1999, the Company had
an outstanding balance of $32,000,000 under the term loan, and $14,935,000 under
the revolving credit facility and $5,000,000 under the acquisition loan.
The credit facilities contain covenants which require the Company to
maintain certain earnings and debt to earnings ratio requirements based on the
combined operations of the Company and its subsidiaries. The Company's agreement
with CIBC restricts the Company's ability to pay dividends. The credit
facilities are secured by a first priority lien on all of the assets of the
Company and its subsidiaries, including subsidiaries currently owned and
subsequently acquired.
In November 1998, the Company borrowed a principal amount of $10,000,000
pursuant to the Subordinated Loan. The Subordinated Loan matures on March 31,
2004 and bears interest at a rate per annum equal to the sum of (i) 12.50% plus
(ii) an additional percentage amount equal to 0.25% commencing on November 30,
1999 and increasing by 0.25% following the last day of each 90-day period
thereafter. Until November 30, 1999, at the option of the lender, interest is
payable in additional notes, Common Stock of the Company or warrants to purchase
Common Stock of the Company. Thereafter, interest is payable in either
additional notes or cash, depending on certain coverage ratios and, in the case
of cash interest payments, the approval of CIBC. The Company will incur an
additional premium of 5.0% on any prepayments of the Subordinated Loan made
prior to November 30, 1999. Such additional premium will be reduced by 100 basis
points on December 1, 1999 and shall be reduced by such amount on each December
1st thereafter until December 1, 2003. In connection with the Subordinated Loan,
the Company issued ten-year warrants to the lender to purchase 440,000 shares of
the Company's Common Stock at an exercise price not to exceed $5.00 per share.
In the event the Company has not paid the loan in full by November 30, 1999
(subject to extension in certain instances), the Company will issue ten-year
warrants to the lender to purchase an additional 200,000 shares of the Company's
Common Stock at an exercise price not to exceed $5.00 per share. In the event
the Subordinated Loan has not been paid in full by May 31, 2001, the exercise
price of such warrants shall be reduced by $1.00 per share and, on each
anniversary of such date, such exercise price
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shall be reduced by an additional $1.00 per share. In addition, subject to
certain limitations, the Company granted registration rights, including "demand"
registration rights, to such lender.
The warrants issued in connection with the Subordinated Loan, which were
deemed to have a value of approximately $308,000, have been recorded as deferred
financing costs, and are being amortized on a straight-line basis over
approximately five years.
The Company's credit facility with its London bank provides for combined
lines of credit of (pound)2,650,000 (approximately $4,248,000) for working
capital for its United Kingdom operations. Such credit facility was increased
from (pound)1,400,000 (approximately $2,308,000) on May 13, 1998. These lines of
credit renew annually and bear interest at 2.0% or 2.5% over the bank's Base
Rate, as defined. In addition, the Company is required to pay a service charge
equal to 0.2% of invoice value. These lines of credit contain covenants which
require the Company's United Kingdom subsidiaries to maintain a minimum net
worth of (pound)500,000, limit borrowings up to specified amounts of accounts
receivable aged 120 days or less and are guaranteed by the Company for the
principal amount of up to (pound)500,000. Amounts outstanding are collateralized
by substantially all of the Company's United Kingdom assets. As of February 28,
1999, the Company had an outstanding balance of (pound)1,494,000 (approximately
$2,394,000) under its United Kingdom credit facility.
In connection with the Five Star Acquisition, the Company entered into a
three-year term loan of (pound)400,000 (approximately $660,000) with its London
bank. Such term loan bears interest at 2.4% over the bank's Base Rate, as
defined, and contains covenants which require the Company to maintain certain
debt to earnings ratios and Net Tangible Assets, as defined, and limits
borrowings to 75% of Net Tangible Assets. The Company's obligations under the
term loan are guaranteed by its United Kingdom subsidiaries. As of February 28,
1999, the Company had an outstanding balance of (pound)322,000 (approximately
$517,000) under the term loan.
The Company has not met a financial covenant under its credit facilities
with CIBC and has requested a waiver of such covenant from CIBC. At February 28,
1999, the credit facilities have been classified as a short-term liability until
such waiver is obtained. The Company believes that CIBC will grant such waiver,
however, there can be no assurance that such waiver will be obtained.
The Company expects that cash flow from operations will be sufficient to
fund its capital lease obligations, debt service payments, potential earn-outs,
capital expenditures and operations for at least 12 months. The Company has
received a commitment from other lenders to replace the existing CIBC credit
facilities. Such commitment is initially for $65,000,000 of senior debt with a
potential increase to $100,000,000 of senior and subordinated debt. There can be
no assurance, however, that such new financing arrangements will be consummated
by the Company.
WORKING CAPITAL. The Company's working capital decreased by $52,951,000
from $8,897,000 at August 31, 1998 to a working capital deficit of $44,054,000
at February 28, 1999. Such decrease is attributable to the Company's credit
facilities with CIBC being classified as a short-term liability until a waiver
from CIBC is obtained. If the Company had obtained a waiver from CIBC, the
Company's working capital at February 28, 1999 would have been $15,001,000.
ACQUISITIONS. Subsequent to the end of the quarter, on April 7, 1999, the
Company, through its wholly-owned subsidiary Unison (NY), consummated the X+C
Acquisition. The purchase price included an initial cash payment of $70,000 and
the issuance of 40,000 shares of restricted Common Stock of the Company to the
sole shareholder of X+C. In addition, the
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purchase price includes a deferred cash payment of $100,000 payable on April 1,
2000, and an earn-out payment of up to $1,000,000 in cash or in some combination
of cash and restricted Common Stock of the Company in the event X+C achieves
certain financial performance objectives.
INFLATION, FOREIGN CURRENCY FLUCTUATIONS AND INTEREST RATE CHANGES.
Although the Company cannot accurately determine the precise effect thereof on
its operations, it does not believe inflation, currency fluctuations or interest
rate changes have historically had a material effect on revenues, sales or
results of operations. Inflation, currency fluctuations and changes in interest
rates have, however, at various times, had significant effects on the economies
of the United States and the United Kingdom and could adversely impact the
Company's revenues, sales and results of operations in the future. If there is a
material adverse change in the relationship between the Pound Sterling and the
United States Dollar, such change would adversely affect the results of the
Company's United Kingdom operations as reflected in the Company's financial
statements. The Company has not hedged its exposure with respect to this
currency risk, and does not expect to do so in the future, since it does not
believe that it is practicable for it to do so at a reasonable cost.
YEAR 2000 COMPLIANCE
The Company believes that it has sufficiently assessed its state of
readiness with respect to its Year 2000 compliance. The Company has developed or
is developing a program to address on a timely basis the risk that computer
applications developed, marketed, sold and delivered or used by the Company may
be unable to recognize and properly perform date-sensitive functions involving
dates prior to and after December 31, 1999 (the "Year 2000 Problem"). The
Company does not believe that Year 2000 compliance will result in material
investments by the Company, nor does the Company anticipate that the Year 2000
Problem will have any adverse effects on the business operations or financial
performance of the Company. The Company does not believe that it has any
material exposure to the Year 2000 Problem with respect to its own information
systems. There can be no assurance, however, that the Year 2000 Problem will not
adversely affect the Company's business, operating results and financial
condition.
The Company believes that each of its products is Year 2000 compliant,
however, it has no control over whether software modification made by third
parties or the combination of its products with the software developed by third
parties and combined with the Company's products will be Year 2000 compliant.
Additionally, there can be no assurance that such potential instances of
non-compliance will not adversely affect the Company's business, operating
results and financial condition. The Company has established no reserve for
auditing its software products or for correcting Year 2000 compliance issues
with such products.
Although the Company believes its products are Year 2000 compliant, the
purchasing patterns of customers and potential customers may be affected by
issues associated with the Year 2000 Problem. As companies expend significant
resources to correct their current data storage solutions, these expenditures
may result in reduced funds to purchase products as those offered by the
Company. There can be no assurance that the Year 2000 Problem will not adversely
affect the Company's business, operating results and financial condition.
Conversely, the Year 2000
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Problem may cause other companies to accelerate purchases, thereby causing an
increase in short-term demand and a consequent decrease in long-term demand for
the Company's products.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
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PART II
ITEM 1. LEGAL PROCEEDINGS.
A dispute has arisen out of the Company's acquisition of Libra City
Corporate Printing Limited ("Libra") in the United Kingdom. The Company has
withheld a portion of the earn-out payment (approximately (pound)230,000 or
$368,000) because of a potential breach of a non-competition clause and
warranties. The parties attempted to resolve the dispute outside of litigation.
However, on August 13, 1998, certain of the shareholders of Libra filed suit
against the Company in the High Court of Justice, Queen's Bench Division seeking
the balance of the earn-out payment. The Company filed a counterclaim seeking to
offset any earn-out payments that may be owed to such shareholders in addition
to any damages arising out of the alleged breach of warranties. On April 14,
1999, the Court ruled that the Company's counterclaim may proceed to trial.
Subsequent to the end of the quarter, on March 31, 1999, the Trustee for
Cardinal filed an adversary proceeding against the Company in Cardinal's Chapter
7 bankruptcy proceeding pending in the United States Bankruptcy Court for the
Southern District of New York. The Trustee is seeking recovery of funds alleged
to be the property of the bankruptcy estate under various bankruptcy code
provisions. In addition, the Trustee is seeking a declaratory judgment regarding
the bankruptcy estate's entitlement to a portion of the proceeds from the sale
of real property acquired by the Company pursuant to the Cardinal Purchase
Agreement. The Company believes that the bankruptcy estate is not entitled to
any additional monies under the Cardinal Purchase Agreement.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Subsequent to the end of the quarter, on March 12, 1999, the Company issued
25,000 shares of restricted Common Stock of the Company to each of Shimon Azulay
and Nadav Chen, employees of Mega Art, as partial consideration for the Mega Art
Acquisition.
Subsequent to the end of the quarter, on April 7, 1999, the Company issued
40,000 shares of restricted Common Stock of the Company to Peter Ksiezopolski as
partial consideration for the X+C Acquisition.
No underwriter was employed by the Company in connection with the issuances
and sales of the securities described above. The Company believes that the
issuances and sales of all of the foregoing securities were exempt from
registration under either (i) Section 4(2) of the Securities Act of 1933, as
amended (the "Act"), as transactions not involving a public offering, or (ii) in
the case of the shares issued to the employee, Rule 701 under the Act as a
transaction made pursuant to a written compensatory benefit plan or pursuant to
a written contract relating to compensation. No public offering was involved and
the securities were acquired for investment and not with a view to distribution.
Appropriate legends have been affixed to the stock certificates issued to the
all recipients of such shares. All recipients had adequate access to information
about the Company.
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ITEM 3. DEFAULT UPON SENIOR SECURITIES.
The Company has not met a financial covenant under its credit facilities
with CIBC and has requested a waiver of such covenant from CIBC. At February 28,
1999, the credit facilities have been classified as a short-term liability until
such waiver is obtained. The Company believes that CIBC will grant such waiver,
however, there can be no assurance that such waiver will be obtained.
In addition, the Company has received a commitment from other lenders to
replace the existing CIBC credit facilities. Such commitment is initially for
$65,000,000 of senior debt with a potential increase to $100,000,000 of senior
and subordinated debt. There can be no assurance, however, that such new
financing arrangements will be consummated by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of the Company was held on February 4,
1999.
There were 4,156,308 shares present at the meeting in person or by proxy.
The results of the vote taken at such meeting with respect to each nominee for
director were as follows:
NOMINEE FOR WITHHELD
------- --- --------
William E. Dye 4,145,698 10,610
Peter Saad 4,145,698 10,610
Richard J. Sirota 4,145,198 11,110
Anthony Manser 4,145,198 11,110
Harvey Silverman 4,145,198 11,110
David Wachsman 4,145,198 11,110
Also at the meeting, a vote was taken on the proposal to amend the
Certificate of Incorporation of the Company to increase the Company's authorized
shares of Common Stock from 10,000,000 to 25,000,000 and the Company's
authorized Preferred Stock from 5,000,0000 to 10,000,000. Of the 4,156,308
shares present at the meeting in person or by proxy, 3,418,513 shares were voted
in favor of such proposal, 131,980 shares were voted against such proposal, and
600 shares abstained from voting. There were also 605,215 broker non-votes with
respect to such proposal.
Also at the meeting, a vote was taken on the proposal to amend the 1997
Equity Incentive Plan to increase the number of shares of Common Stock reserved
for the issuance upon exercise of options granted under such plan from 500,000
to 1,000,000. Of the 4,156,308 shares present at the meeting in person or by
proxy, 3,151,213 shares were voted in favor of such proposal, 398,880 shares
were voted against such proposal, and 1,000 shares abstained from voting. There
were also 605,215 broker non-votes with respect to such proposal.
Finally, a vote was taken at the meeting on the proposal to ratify the
appointment of Ernst & Young LLP as the independent certified public accountants
of the Company for the fiscal year ending August 31, 1999. Of the 4,156,308
shares present at the meeting in person or by proxy, 4,147,898 shares were voted
in favor of such proposal, 800 shares were voted against such proposal, and
7,610 shares abstained from voting.
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ITEM 5. OTHER INFORMATION.
On February 4, 1999, the Company's application for listing of the Company's
Common Stock on the American Stock Exchange ("AMEX") was approved. The Company's
Common Stock began trading on AMEX on February 8, 1999.
Subsequent to the end of the quarter, on April 7, 1999, the Company,
through its wholly-owned subsidiary Unison (NY), consummated the X+C
Acquisition. The purchase price included an initial cash payment of $70,000 and
the issuance of 40,000 shares of restricted Common Stock of the Company to the
sole shareholder of X+C. In addition, the purchase price includes a deferred
cash payment of $100,000 payable on April 1, 2000, and an earn-out payment of up
to $1,000,000 in cash or in some combination of cash and restricted Common Stock
of the Company in the event X+C achieves certain financial performance
objectives.
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K.
(A) EXHIBITS.
Exhibit No. Description of Exhibit
----------- ----------------------
10.1 Asset Purchase Agreement dated as of
April 7, 1999 by and among Unidigital
Inc., Unison (NY), Inc., Peter X(+C)
Limited and Peter Ksiezopolski.
27.1 Financial Data Schedule.
(B) REPORTS ON FORM 8-K.
On February 16, 1999, the Company filed a Current Report on Form 8-K/A
containing required financial statements and pro forma financial information
relating to the SuperGraphics Acquisition disclosed in its Current Report on
form 8-K filed on December 14, 1998.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Issuer caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNIDIGITAL INC.
DATE: April 19, 1999 By: /s/William E. Dye
-----------------------------
William E. Dye,
Chief Executive Officer
(Principal Executive Officer)
ASSET PURCHASE AGREEMENT
Agreement made as of the 26th day of March, 1999 by and among Unidigital
Inc., a Delaware corporation with its principal office at 229 West 28th Street,
New York, New York 10001 ("UNIDIGITAL"), its wholly owned subsidiary, Unison
(NY), Inc., a Delaware corporation with its principal office at c/o Unidigital
Inc., 229 West 28th Street, New York, New York (the "BUYER"), Peter X(+C)
Limited, a New York corporation with its principal office at 200 Varick Street
(#600) New York, New York (the "SELLER") and Peter Ksiezopolski, the holder of
all the issued and outstanding capital stock of the Seller (the "SHAREHOLDER").
The Seller and the Shareholder are sometimes collectively referred to herein as
the "SELLING PARTIES."
Preliminary Statement
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The Seller is engaged principally in the digital prepress business (the
"BUSINESS"). The Buyer desires to purchase, and the Seller desires to sell,
certain of the assets and the Business of the Seller, for the consideration set
forth below and the assumption of certain of the Seller's liabilities set forth
below, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Sale and Delivery of the Assets
-------------------------------
1.1 Delivery of the Assets.
----------------------
(a) Subject to and upon the terms and conditions of this
Agreement, except as specifically provided in Section 1.1(b) hereof, at the
closing of the transactions contemplated by this Agreement (the "CLOSING"), the
Seller shall sell, transfer, convey, assign and deliver to the Buyer, and the
Buyer shall purchase from the Seller, free and clear of all liens, liabilities,
security interests, leasehold interests and encumbrances of any nature
whatsoever (except as otherwise expressly provided herein), all of the
properties, assets and other claims, rights and interests of the Seller or which
are used in the Business of whatever kind, character or description, whether
real, personal or mixed, tangible or intangible, wherever situated, including
without limitation:
(i) all inventories of raw materials, work in process,
goods in transit (i.e., inventories purchased by, but not delivered to, the
Seller), finished goods, office supplies, maintenance supplies, packaging
materials, spare parts and similar items (collectively, the "INVENTORY");
(ii) all accounts receivable and notes receivable
(including any security held by the Seller for the payment thereof)
(collectively, the "ACCOUNTS RECEIVABLE");
<PAGE>
(iii) those prepaid expenses set forth in Schedule 1.1(a)
---------------
(iii);
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(iv) all rights under the contracts, agreements, leases,
licenses, purchase orders, customer sales agreements and other instruments set
forth on Schedule 2.13(a) attached hereto (collectively, the "CONTRACT RIGHTS");
---------------
(v) all bank accounts of the Business and other assets
listed on Schedule 2.9;
(vi) all books; payment records; accounts; customer lists;
environmental reports or studies; correspondence; production records; technical,
accounting, manufacturing and procedural manuals; engineering data; development
and design data; plans, blueprints, specifications and drawings; employment and
personnel records; and other useful business records, including electronic
media, and any confidential or other information which has been reduced to
writing, utilized in the conduct of or relating to the Business or the Assets
as hereinafter defined), subject to the Seller's right to retain copies thereof
which the Seller reasonably requires for its ongoing operation, winding-up or
dissolution;
(vii) all rights of the Seller under express or implied
warranties from the suppliers of the Assets to the extent transferable (but
excluding such rights insofar as the same pertain to liabilities retained by the
Seller hereunder);
(viii) the motor vehicles and other rolling stock listed
on Schedule 1.1(a)(viii);
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(ix) all of the machinery, equipment, tools, dies,
tooling, production fixtures, maintenance machinery and equipment, computers,
telecommunication systems, fittings and other office equipment and furniture,
whether or not reflected as capital assets in the accounting records of the
Seller which are owned by the Seller and used or useful in the Business
including but not limited to all of the foregoing located at the locations set
forth on Schedule 2.8 (collectively, the "FIXED ASSETS");
------------
(x) all right, title and interest of the Seller in and
to all intangible property rights relating to the Business, including but not
limited to inventions, discoveries, trade secrets, processes, formulas,
know-how, United States and foreign patents, patent applications, trade names,
and those names listed on Schedule 2.20 attached hereto, trademarks, trademark
-------------
registrations, applications for trademark registrations, copyrights, copyright
registrations, certification marks, industrial designs, technical expertise,
research data and other similar property and the registrations and applications
for registration thereof owned by the Seller or, where not owned, used by the
Seller in the Business and all goodwill associated therewith and all licenses
and other agreements to which the Seller is a party (as licensor or licensee)
or by which the Seller is bound relating to any of the foregoing kinds of
property or rights to any "know-how" or disclosure or use of ideas
(collectively, the "INTANGIBLE PROPERTY");
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<PAGE>
(xi) all transferable approvals, authorizations,
certifications, consents, variances, permissions, licenses and permits to or
from, or filings, notices or recordings to or with, federal, state, foreign, and
local governmental authorities as held or effected by the Seller in connection
with the Assets;
(xii) all of the Seller's goodwill and the exclusive
right to use the names of the Seller as all or part of a corporate name;
(xiii) except as specifically provided in Section 1.1(b)
hereof, all other assets, properties, claims, rights and interests of the Seller
which relate to the Business and exist on the date hereof, of every kind and
nature and description, whether tangible or intangible, real, personal or mixed;
and
(xiv) cash or cash equivalents ("CASH").
(b) Notwithstanding the provisions of Section 1.1(a) above,
the assets to be transferred to the Buyer under this Agreement shall not include
(i) any of Seller's rights or consideration under this Agreement, or (ii) any
refunds of federal, state, foreign or local income or other tax paid by the
Seller, or (iii) any insurance policies (including life insurance policies)
currently held by the Seller and related premium agreements for general
liability, product liability and workers compensation insurance for periods
prior to the date of Closing, (iv) any real estate or leases, subleases,
licensing or other interests relating to real property (including proceeds or
consideration for the surrender thereof and the return of security deposits
related thereto), or (v) those assets listed on Schedule 1.1(b) attached hereto
--------------
(collectively, the "EXCLUDED ASSETS").
(c) The Inventory, Accounts Receivable, Contract Rights,
Fixed Assets, Intangible Property, Cash and other properties, assets and
business of the Seller described in Section 1.1(a) above, other than the
Excluded Assets, shall be referred to collectively as the "ASSETS."
1.2 Further Assurances.
------------------
(a) At the Closing, the Seller shall execute and deliver a
Bill of Sale (the "BILL OF SALE") substantially in the form attached hereto as
Exhibit A, and the assignments described in Sections 7.14(b) and (c) hereof. At
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any time and from time to time after the Closing, at the Buyer's request and
without further consideration, the Selling Parties (or their successors)
promptly shall execute and deliver such assignments of leases and other
instruments of sale, transfer, conveyance, assignment and confirmation, and take
such other action, as the Buyer may reasonably request to more effectively
transfer, convey and assign to the Buyer, and to confirm the Buyer's title to,
all of the Assets and the Business, to put the Buyer in actual possession and
operating control thereof, to assist Buyer in exercising all rights with respect
thereto and to carry out the purpose and intent of this Agreement.
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<PAGE>
(b) The Selling Parties and the Buyer each will use its best
efforts to obtain as promptly as possible written consents to the transfer,
assignment or sublicense to the Buyer of all agreements, commitments, purchase
orders, contracts, licenses, leases, rights and other contract documents being
transferred pursuant to Section 1.1(a) hereof where the approval or other
consent of any other person is required. If any such approval or consent cannot
be obtained, or if the parties hereafter agree in writing that it is not in
their respective best interests to obtain any such approval or other consent,
the Selling Parties will cooperate with the Buyer in any reasonable arrangement
designed to provide the Buyer with substantially the same benefits as if such
approval or other consent had been obtained and the transfer effected at the
Closing.
1.3 Assumption of Liabilities.
-------------------------
(a) At the Closing, the Buyer shall execute and deliver an
Instrument of Assumption of Liabilities (the "ASSUMPTION AGREEMENT")
substantially in the form attached hereto as Exhibit B, pursuant to which it
---------
shall assume and agree to (i) perform, pay and discharge, in accordance with
their respective terms, all those liabilities and obligations set forth on
Schedule 1.3(a) attached hereto which were incurred in the ordinary course of
- ---------------
business of the Business and are outstanding at the time of the Closing, not to
exceed $200,000 unless otherwise agreed by the Buyer (the obligations set forth
in (i) are collectively, the "ASSUMED CURRENT LIABILITIES"); (ii) perform in
accordance with their terms those obligations outstanding at the time of the
Closing under the Contract Rights; and (iii) perform in accordance with their
terms those liabilities arising after the time of Closing from any agreement,
contract, commitment or other contract documents which the Buyer has requested
be transferred to it pursuant to Section 1.1(a) but which has not been so
transferred due to the failure of the Seller to obtain the consent or approval
required for such transfer, provided that the Buyer has received substantially
the same benefit of such contract as if such consent or approval had been
obtained (the obligations set forth in (i), (ii) and (iii) are, collectively,
the "ASSUMED LIABILITIES").
(b) Except as otherwise provided herein, the Buyer shall not
assume any of the liabilities of the Selling Parties and shall purchase the
Assets free and clear of all liens, mortgages, security interests, encumbrances
and claims and the Selling Parties each represent, warrant and agree that the
Buyer shall not be or become liable for any claims, demands, liabilities or
obligations not expressly assumed in this Agreement of any kind whatsoever
arising out of or relating to the conduct of the Business by Seller or the
Assets or Assumed Liabilities prior to the date hereof. Without limiting the
foregoing, the Buyer shall not at the Closing assume or agree to perform, pay or
discharge, and the Selling Parties shall remain unconditionally liable for, all
obligations, liabilities and commitments, fixed or contingent, of the Selling
Parties other than the Assumed Liabilities, including but not limited to:
(i) severance, termination or other payments or
benefits (including but not limited to post-retirement benefits) including
but not limited to those owing under the Seller's severance policy or any
employment agreement to any employees (union or non-union), sales agents or
independent contractors employed by the Seller prior to the Closing
(collectively, "SELLER'S EMPLOYEES"), liabilities arising under any federal,
state, local or foreign
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<PAGE>
"plant closing law", liabilities accruing under the Seller's employee benefit
plans, vacation pay plans or programs, retirement plans, and liabilities for any
Employee Plan (as defined in Section 2.21 except those liabilities to Seller's
Employees who become employees of the Buyer after the Closing relating solely to
and arising solely out of their term of employment with the Buyer);
(ii) worker's compensation claims arising from events
prior to the Closing;
(iii) profit sharing, stock option or other stock-based
awards made to Seller's Employees;
(iv) liabilities for any federal, state, local or
foreign income taxes (including interest, penalties and additions to such taxes)
or any deferred income taxes of the Selling Parties;
(v) liabilities for any payroll taxes (including
interest, penalties and additions to such taxes), except those liabilities to
Seller's Employees who become employees of the Buyer after the Closing relating
solely to and arising solely out of their term of employment with the Buyer;
(vi) liabilities incurred for violations of
occupational safety, wage, health, welfare, employee benefit or environmental
laws or regulations prior to the date hereof;
(vii) liabilities to the extent related to the Excluded
Assets;
(viii) any tax (including but not limited to any federal,
state, local or foreign income, franchise, single business, value added, excise,
customs, intangible, sales, transfer, recording, documentary or other tax)
imposed upon, or incurred by, the Selling Parties, if any, in connection with
or related to the Business, this Agreement or the transactions contemplated
hereby (including interest, penalties and additions to such taxes);
(ix) liabilities for any commercial rent taxes to the
extent accrued but not paid prior to the date hereof;
(x) other than the Assumed Liabilities, any
liabilities of the Seller to third parties arising out of the failure of the
Seller to obtain any necessary consents to the assignment to the Buyer of
contracts or leases to which the Seller is a party (including damages asserted
by third parties for breach of such contracts or leases due to the failure to
obtain such consents);
(xi) liabilities, contingent or otherwise, which are
not disclosed on Schedule 1.3(a);
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<PAGE>
(xii) liabilities for borrowed money or liabilities,
other than the Assumed Liabilities, to creditors of the Selling Parties;
(xiii) liabilities of the Seller for any state franchise
taxes or annual license or other fees relating to qualification as a foreign
corporation or authorization to do business in such states (including interest,
penalties and additions to such taxes and fees);
(xiv) liabilities for borrowed money or other
liabilities of Seller to its shareholder. It is expressly agreed that sellers
shareholder hereby releases Seller from, and waives repayment of, any and all
obligations of Seller to its shareholder;
(xv) any liability associated with that certain
lawsuit entitled Aileen Kuo, Plaintiff vs. Pei, Cobb, Freed & Partners, Simon,
-------------------------------------------------------------
Martin-Vegue, et.al. filed in San Francisco County Superior Court as Case No.
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992115; and
(xvi) any other liabilities of any kind or nature
whether now in existence or arising hereafter not expressly assumed by the Buyer
under Section 1.3(a) hereof.
1.4 Purchase Price.
--------------
(a) The purchase price for the Assets shall be Three Hundred
Seventy Thousand Dollars ($370,000) plus certain cash proceeds from the
collection of Accounts Receivable (as defined below) and a contingent earnout,
all as described below, plus the assumption by the Buyer of the Assumed
Liabilities (the "PURCHASE PRICE").
(b) The Purchase Price shall be payable as follows:
(i) At the Closing, Buyer shall deliver to Seller
Forty Thousand (40,000) shares of restricted Unidigital common stock (the
"UNIDIGITAL STOCK") (the "UNIDIGITAL STOCK CONSIDERATION");
(ii) At the Closing, Buyer shall pay to Seller or its
designees Seventy Thousand Dollars ($70,000) cash (together with the payments
referred to in Section 1.4(b)(iii) and 1.4(c) below, the "CASH CONSIDERATION");
(iii) On April 1, 2000, Buyer shall pay to Seller or its
designees One Hundred Thousand Dollars ($100,000); and
(iv) Subject to the provisions of this Section 1.4(e)
(iv), an earnout payment (the "EARNOUT PAYMENT"). The Earnout Payment shall be
due in the event that gross sales less discounts, credits, sales taxes and
delivery charges attributable to the sales efforts of the Shareholder and Kathy
Wright for Unidigital and its consolidated subsidiaries (hereinafter the "NET
SALES") for any of the twelve (12) month periods ending March 31, 2000, March
31, 2001 and March 31, 2002 (each such twelve month period being referred to as
an "EARNOUT YEAR") exceed $1,600,000 (the "BASE AMOUNT") as follows:
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<PAGE>
(A) If the Net Sales for any particular Earnout Year
are greater than the Base Amount but less than Two Million Four Hundred Thousand
Dollars ($2,400,000), then the Seller shall be paid an amount equal to twenty
percent (20%) of the sales in excess of the Base Amount for that Earnout Year.
(B) If the Net Sales for any particular Earnout Year
are equal to or greater than Two Million Four Hundred Thousand Dollars
$2,400,000) but less than Three Million Two Hundred Thousand Dollars
($3,200,000), then the Seller shall be paid an amount equal to twenty-two
percent (22%) of the Net Sales in excess of the Base Amount for that Earnout
Year.
(C) If the Net Sales for any particular Earnout Year
are equal to or greater than Three Million Two Hundred Thousand Dollars
($3,200,000) but less than Four Million Dollars ($4,000,000), then the Seller
shall be paid an amount equal to twenty-four percent (24%) of the Net Sales
in excess of the Base Amount for that Earnout Year.
(D) If the Net Sales for any particular Earnout Year
are equal to or greater than Four Million Dollars ($4,000,000), then the
Seller shall be paid an amount equal to twenty-five percent (25%) of the Net
Sales in excess of the Base Amount for that Earnout Year.
(E) If the Net Sales for any particular Earnout Year
are less than the Base Amount, Seller shall not be entitled to any Earnout
Payment for that Earnout Year.
(F) The Earnout Payment, if any, due in respect of the
Earnout Year ending March 31, 2000 (the "FIRST EARNOUT YEAR") shall be payable
in cash (or, by further mutual agreement of the Buyer and the Seller, in some
combination of cash and shares of Unidigital stock) within ninety (90) days
after the end of the First Earnout Year or, if disputed, within ten (10) days
after resolution of the dispute as set forth below.
(G) With respect to Earnout Payments, if any, due for
the Earnout Years ending March 31, 2001 and March 31, 2002 (respectively, the
"SECOND EARNOUT YEAR" and "THIRD EARNOUT YEAR"), fifty percent (50%) of the
Earnout Payment shall be paid to Seller in cash (or, by further mutual agreement
of the Buyer and the Seller in some combination of cash and shares of Unidigital
Sock) in twelve (12) equal monthly installments. Such payments shall be made
within thirty (30) days after the end of each calendar month of the applicable
Earnout Year but only to the extent measured by Net Sales in excess of the Base
Amount which are actually collected prior to any such payment. The balance of
the Earnout Payments due for the Second Earnout Year and the Third Earnout Year
shall be paid within ninety (90) days after the end of the applicable Earnout
Year, or, if disputed, within ten (10) days after resolution of the dispute as
set forth below.
(H) Notwithstanding anything contained herein to the
contrary, in the event that the Shareholder voluntarily terminates his
employment with the Buyer, from and
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<PAGE>
after the date of such termination, the Seller shall only be entitled to an
amount equal to one-half (1/2) of the Earnout Payment as set forth in Sections
1.4 (b)(iv)(A) through (D) above for the period after such termination.
(I) Any Earnout Payment made hereunder shall be
accompanied by an accounting from the Buyer setting forth the basis on which the
calculation for the Earnout payment was made. Also, Seller shall be entitled
to audit Unidigital's books for the purposes of determining the Net Sales for
any particular Earnout Year. In the event a dispute regarding the amount of any
Earnout Payment, the Seller shall notify the Buyer in writing (the "DISPUTE
NOTICE") within sixty (60) days after any such Earnout Payment shall have been
due. Within ten (10) days after receipt of the Dispute Notice, the parties shall
use their best efforts to resolve such dispute. Upon their failure to do so,
the dispute shall be submitted for arbitration as follows:
(1) The arbitrator shall be a "Big Five" public accounting firm
located in the City of New York, State of New York (other than Ernst & Young
LLP), unless both parties agree on the selection of another arbitrator. In the
event the selected arbitrator declines or is unable to serve for any reason, the
parties shall select another arbitrator. Upon their failure to agree on another
arbitrator, the jurisdiction of the Supreme Court of the State of New York shall
be invoked to make such selection.
(2) The arbitrator shall follow the Commercial Arbitration
Rules of the American Arbitration Association, except as otherwise provided
herein. The arbitrator shall substantially comply with the rules of evidence;
shall grant essential but limited discovery; shall provide for the exchange of
witness lists and exhibit copies; shall conduct a pretrial and consider
dispositive motions. Each party shall have the right to request the arbitrator
to make findings of specific factual issues.
(3) The arbitrator shall complete its proceedings and render its
decision within forty (40) days after submission of the dispute to it, unless
both parties agree to an extension. Each party shall cooperate with the
arbitrator to comply with procedural time requirements and the failure of
either to do so shall entitle the arbitrator to extend the arbitration
proceedings accordingly and to impose sanctions on the party responsible for the
delay, payable to the other party.
(4) In the event the arbitrator does not fulfill its
responsibilities on a timely basis, either party shall have the right to require
a replacement and the appointment of a new arbitrator.
(5) The decision of the arbitrator shall be final and binding
upon the parties and accordingly a judgment by a court of competent jurisdiction
may be entered in accordance therewith.
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<PAGE>
(6) Each party shall be responsible for one-half (1/2) of the
fees of the arbitrator. Additionally, if the arbitrator finds that the Earnout
Payment due to the Seller for any particular Earnout Year is three percent
(3%) or more greater than the amount Buyer has proposed to pay, Buyer shall be
responsible for the costs of Seller's audit of Net Sales.
(c) Buyer agrees to use reasonable efforts to collect the
accounts receivable of the Business existing as of the Closing Date as set forth
in Schedule 1.4(c) attached hereto (the "ACCOUNTS RECEIVABLE"). All proceeds
---------------
from the collection of the Accounts Receivable (net of third party collection
costs) (the "ACCOUNTS RECEIVABLE PROCEEDS") shall be retained by the Buyer until
the Accounts Receivable Proceeds equal the aggregate amount of the accounts
payable of the Business existing as of the Closing Date as set forth in Schedule
--------
1.4(c) attached hereto (the "ACCOUNTS PAYABLE"). All Accounts Receivable
- ------
Proceeds, if any, in excess of an amount equal to the Accounts Payable shall be
paid to the Seller within ten (10) days after the end of each calendar quarter
in which they are received, beginning with the quarter ending June 30, 1999.
Notwithstanding anything to the contrary contained herein, no further Accounts
Receivable Proceeds shall be due to Seller with respect to amounts collected
after the quarter ending September 30, 2000 (the "PROCEEDS TERMINATION DATE"),
except for Accounts Receivable Proceeds collected after the Proceeds Termination
Date pursuant to litigation commenced prior to the Proceeds Termination Date. In
the event that, as of the Proceeds Termination Date, the Accounts Receivable
Proceeds have been less than the Accounts Payable (as they existed on the
Closing Date) the Seller shall pay the Buyer the amount of the difference within
thirty (30) days. If, after such payment, Accounts Receivable Proceeds are
collected pursuant to any litigation as referenced above, such Accounts
Receivable Proceeds shall be paid to Seller.
1.5 The Closing.
-----------
(a) The Closing shall take place at the offices of the Buyer
(or at such other place as the parties may agree in writing) on March 30, 1999,
or such other date mutually designated by Seller and Buyer. The date on which
the Closing is held is referred to in this Agreement as the "CLOSING DATE". At
the Closing, the parties shall make the closing deliveries referred to in
Sections 7.14 and 8.6.
1.6 Allocation of Purchase Price. The aggregate amount of
----------------------------
the Purchase Price shall, for tax purposes only, be allocated among the Assets
and Assumed Liabilities as the parties shall mutually agree within thirty (30)
days of the Closing. The Seller and the Buyer agree that they will not take any
position which is materially inconsistent with the allocations thus agreed
to in preparing income, capital or franchise tax returns.
2. Representations of the Selling Parties
--------------------------------------
The representations and warranties made by the Selling Parties
herein or in any instrument or document furnished in connection herewith shall
survive the Closing until (and including) the third anniversary of the Closing
Date. The representations and warranties in this Section 2 or in any document
delivered to the Buyer pursuant to this Agreement are deemed to be
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<PAGE>
material and the Buyer is entering into this Agreement relying on such
representations and warranties. The Selling Parties, jointly and severally,
represent and warrant to the Buyer as follows (it being understood that all
references in this Section 2 to the Seller shall be deemed to include any of
Seller's subsidiaries, unless the context otherwise requires):
2.1 Organization. The Seller is a corporation duly
------------
organized, validly existing and in good standing under the laws of the state of
its incorporation, and has all requisite power and authority (corporate and
other) to own its properties, to carry on its business as now being conducted,
to execute and deliver this Agreement and the agreements contemplated herein,
and to consummate the transactions contemplated hereby. Schedule 2.1 sets forth
------------
the authorized and outstanding capital stock of the Seller as well as the record
and beneficial owners thereof. Except as set forth on Schedule 2.1, the Seller
------------
does not own or control or participate in, directly or indirectly, any
corporation, partnership, association or business entity. The Seller is duly
qualified to do business and in good standing in all jurisdictions in which its
ownership of property or the character of its business requires such
qualification. Schedule 2.1 contains a true, correct and complete list of all of
------------
the jurisdictions in which the ownership of the property used in the Business or
the nature of the Business requires qualification.
2.2 Authorization. The execution and delivery of this
-------------
Agreement (and all other agreements provided for herein) by the Seller, and the
consummation by the Seller of all transactions contemplated hereby, has been
duly authorized by all requisite corporate and shareholder action. This
Agreement and all such other agreements and obligations entered into and
undertaken in connection with the transactions contemplated hereby to which the
Seller is a party constitutes the valid and legally binding obligations of the
Seller, enforceable against it, in accordance with their respective terms except
as such enforceability may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally. The execution, delivery
and performance by the Seller of this Agreement and the agreements provided for
herein, and the consummation by the Buyer of the transactions contemplated
hereby and thereby, will not, with or without the giving of notice or the
passage of time or both, (a) violate the provisions of any law, rule or
regulation applicable to the Seller; (b) violate the provisions of the
Certificate of Incorporation or Bylaws of the Seller; (c) violate any judgment,
decree, order or award of any court, governmental body or arbitrator; or (d)
conflict with or result in the breach or termination of any term or provision
of, or constitute a default under, or cause any acceleration under, or cause the
creation of any lien, charge or encumbrance upon the properties or assets of the
Seller pursuant to, any indenture, mortgage, deed of trust or other instrument
or agreement to which any of them is a party or by which any of them or any of
their properties is or may be bound, other than with respect to obligations of
Seller which will be discharged at or prior to Closing. Schedule 2.2 attached
------------
hereto sets forth a true, correct and complete list of all consents, approvals,
permissions, licenses, authorizations and other requirements prescribed by law,
rule, regulation or by contract in connection with the consummation by the
Seller of the transactions contemplated by this Agreement. Except as indicated
on Schedule 2.2, all such items have been or will be, prior to the Closing Date,
------------
obtained and satisfied.
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<PAGE>
2.3 Ownership of the Assets. Except as set forth on
-------------------------
Schedule 2.3 attached hereto, there are no claims, liabilities, liens, pledges,
- ------------
charges, encumbrances and/or equities of any kind affecting the Assets
(collectively, the "ENCUMBRANCES"). The Seller is the true and lawful owner of
the Assets, and has the right to sell and transfer to the Buyer good and
marketable title to all Assets, which are free and clear of all Encumbrances.
The delivery to the Buyer of the instruments of transfer of ownership
contemplated by this Agreement will vest good and marketable title to all Assets
in the Buyer, free and clear of all liens, mortgages, pledges, security
interests, restrictions, prior assignments, encumbrances and claims of any kind
or nature whatsoever. The Assets to be conveyed to the Buyer hereunder
constitute all properties, assets, rights and claims (except those related to
real estate) which are necessary to or used in the conduct of the Business as
currently conducted by the Seller.
2.4 Financial Statements.
---------------------
(a) The Seller has previously delivered to the Buyer its
its profit and loss statements and a balance sheet on a compilation basis
prepared by Fishman Ostroff Ruchowitz Hausman, PA for the years ended December
31, 1996 and 1997 and by Ruchowitz Hausman Palmieri & Associates, PA for the
year ended December 31, 1998, (collectively, the "FINANCIAL STATEMENTS").
(b) The Financial Statements are accurate and complete,
and fairly present, as of their respective dates, the financial condition,
retained earnings (deficit), assets and liabilities of the Seller and the
results of operations of the Seller's business for the periods indicated.
Nothing has come to the attention of the Seller since the date of the Financial
Statements which would lead it to believe that the reserves and accruals shown
thereon are inadequate for all reasonably anticipated losses, costs and expenses
and the Seller reasonably believes that such reserves and accruals are adequate
for all of such losses, costs and expenses.
2.5 Litigation. Except as set forth on Schedule 2.5, the
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Seller is not a party to, or to the Selling Parties' best knowledge threatened
with, and none of the Assets are subject to, any litigation, suit, action,
investigation (to the best of the Selling Parties' knowledge), grievance,
arbitration, proceeding, or controversy or claim before any court,
administrative agency or other governmental authority relating to or affecting
the Assets or the business, properties, condition (financial or otherwise) or
prospects of the Business. The Seller is not in violation of or in default with
respect to any judgment, order, award, writ, injunction, decree or rule of any
court, governmental department, commission, agency, instrumentality, arbitrator,
administrative agency or governmental authority or any regulation of any
administrative agency or governmental authority, where such violation or default
would have a material adverse effect upon the Assets, the business, properties,
condition (financial or otherwise) or prospects of the Business or the
consummation of the transactions contemplated hereby (a "MATERIAL ADVERSE
EFFECT"). The Seller has not received notice of any product liability claim,
warranty claim or other claim whatsoever which, if decided adversely, would have
a Material Adverse Effect.
-11-
<PAGE>
2.6 Insurance. Schedule 2.6 sets forth a true, correct
--------- -------------
and complete list of all claims made since January 1, 1996 on all fire, theft,
casualty, general liability, workers compensation, business interruption,
environmental impairment, product liability, automobile and other insurance
policies insuring the Assets or business of the Business and of all life
insurance policies maintained for any employees of the Business, specifying the
type of coverage, the amount of coverage, the premium, the insurer and the
expiration date of each such policy (collectively, the "INSURANCE POLICIES").
The Insurance Policies are in full force and effect and are in amounts and of a
nature which are adequate and customary for the business of the Business. All
premiums due on the Insurance Policies or renewals thereof have been paid and
there is no default under any of the Insurance Policies. Except as set forth on
Schedule 2.6, the Seller has not received any notice or other communication from
- ------------
any issuer of the Insurance Policies canceling or materially amending any of the
Insurance Policies, materially increasing any deductibles or retained amounts
thereunder, or materially increasing the annual or other premiums payable
thereunder, and, to the best knowledge of the Selling Parties, no such
cancellation, amendment or increase of deductibles, retainers or premiums is
threatened.
2.7 [Intentionally Omitted]
2.8 Fixed Assets. Schedule 2.8 sets forth a true, correct
------------ ------------
and complete list of all Fixed Assets as of the date hereof.
2.9 Bank Accounts; Securities. Set forth in Schedule 2.9
------------------------- ------------
is a list of all bank accounts, safe deposit boxes, money market funds,
certificates of deposit, stocks, bonds, notes and other securities in the names
of or owned or controlled by the Seller, all of which are included in the
Assets.
2.10 Change in Financial Condition and Assets. Except as
-----------------------------------------
set forth in Schedule 2.16, since December 31, 1998, there has been no change
-------------
which would result in a Material Adverse Effect. The Selling Parties have no
knowledge of any existing or threatened occurrence, event or development related
to the Assets or the business, properties, condition (financial or otherwise) or
prospects of the Business which could have a Material Adverse Effect.
2.11 Accounts Receivable. Schedule 2.11 sets forth a true,
------------------- -------------
correct and complete list of all Accounts Receivable, including an aging thereof
as of the Closing Date. All Accounts Receivable arose out of the sales of
inventory or services in the ordinary course of business and to the best of
Seller's knowledge are collectible in the values set forth on Schedule 2.11 net
-------------
of the respective reserves shown on the latest balance sheet included in the
Financial Statements (which reserves are adequate and calculated consistent with
past practice). Except as set forth on Schedule 2.11, there is no contest,
--------------
claim, or right of set-off, other than returns in the ordinary course of
business, under any contract or agreement with any account debtor of an Account
Receivable relating to the amount or validity of such Account Receivable.
2.12 Books and Records. The general ledgers, minute books
-----------------
and books of account of the Seller with respect to the Business, all federal,
state, local and foreign income,
-12-
<PAGE>
franchise, property and other tax returns filed by the Seller, with respect to
the Assets, and all other books and records of the Seller with respect to the
Business, all of which have been made available to the Buyer, are in all
material respects complete and correct and have been maintained in accordance
with good business practice and in accordance with all applicable procedures
required by laws and regulations other than any digression from such practice
and procedures which has no material and adverse effect on the Assets or the
Business, or the valuations thereof for the purposes of this Agreement, as
conducted as of and prior to the Closing Date.
2.13 Contracts and Commitments.
-------------------------
(a) Schedule 2.13(a) attached hereto contains a true,
-----------------
complete and correct list and description of the following contracts and
agreements, whether written or oral, which relate to the Business:
(i) all loan agreements, indentures, mortgages and
guaranties to which the Seller is a party or by which the Seller or its property
is bound;
(ii) all pledges, conditional sale or title retention
agreements, security agreements, equipment obligations, personal property leases
and lease purchase agreements relating to any of the Assets to which the Seller
is a party or by which the Seller or any of its property is bound;
(iii) all contracts, agreements, commitments, purchase
orders (other than merchandise deliveries to customers in the normal course of
business upon standard terms) or other understandings or arrangements to which
the Seller is a party or by which any of their respective property is bound
which (A) involve payments or receipts by any of them of more than $10,000 in
the case of any single contract, agreement, commitment, understanding or
arrangement under which full performance (including payment) has not been
rendered by all parties thereto or (B) may materially adversely affect the
condition (financial or otherwise) or the properties, Assets, business or
prospects of the Business;
(iv) all collective bargaining agreements, employment and
consulting agreements, non-competition agreements, trust agreements, executive
compensation plans, bonus, 401(k), or profit-sharing plans, deferred
compensation agreements, pension plans, retirement plans, employee stock option
or stock purchase plans and group life, health and accident insurance and other
employee benefit plans, agreements, memoranda of understanding, arrangements or
commitments to which the Seller is a party or by which the Seller or any of its
property is bound;
(v) all agency, distributor, sales representative and
similar agreements to which the Seller is a party;
(vi) all material contracts, agreements or other
understandings or arrangements, whether written or oral, between the Seller and
any shareholder, employee,
-13-
<PAGE>
officer or director of the Seller which may affect the Assets or the Business as
conducted as of and prior to the date hereof;
(vii) all leases (other than leases for real estate),
whether operating, capital or otherwise, under which the Seller is lessor or
lessee, including, without limitation, all equipment leases;
(viii) all contracts, agreements and other documents or
information relating to past disposal of waste (whether or not hazardous) which
are available;
(ix) all return policies and product warranties relating
to products or goods manufactured or distributed by the Business as the same are
currently in effect or may have been in effect from time to time since December
31, 1996, as well as any exception to such policies, all cooperative advertising
arrangements and all rebate, discount or allowance arrangements; and
(x) any licensing agreements, franchise agreements and
other material agreement or contract entered into by the Seller.
(b) Schedule 2.13(b) attached hereto sets forth a true,
----------------
correct and complete list of the contracts and agreements, whether written or
oral, which are to be assigned from the Seller to the Buyer at the Closing
(collectively, the "Contracts").
(c) Except as set forth on Schedule 2.13(c), the
-----------------
continuation, validity and effectiveness of each Contract would not be affected
by the transfer thereof to the Buyer under this Agreement and all such Contracts
are assignable to the Buyer without a consent and:
(i) each Contract is a valid and binding agreement of
the Seller, enforceable against the Seller in accordance with its terms, and the
Selling Parties have no knowledge that any Contract is not a valid and binding
agreement of the other parties thereto:
(ii) the Seller has fulfilled all material obligations
required pursuant to the Contracts to have been performed by it prior to the
date hereof;
(iii) the Seller is not in breach of or default under any
Contract, and no event has occurred which with the passage of time or giving of
notice or both would constitute such a default, result in a loss of rights or
result in the creation of any lien, charge or encumbrance, thereunder or
pursuant thereto (an "INCHOATE DEFAULT"); and
(iv) to the best knowledge of the Selling Parties, there
is no existing breach or default by any other party to any Contract, and no
Inchoate Default.
(d) True, correct and complete copies of all of the foregoing
contracts and agreements (other than all unfilled purchase orders and all
unfilled customer orders),
-14-
<PAGE>
including but not limited to the Contracts, and a list of all unfilled purchase
orders and all unfilled customer orders, have been delivered by the Seller to
the Buyer prior to the date hereof.
2.14 Compliance with Laws. The Seller has all requisite
--------------------
licenses, permits and certificates, including health and safety permits, from
federal, state, local and foreign authorities necessary to conduct the Business
and own and operate the Assets (collectively, the "Permits"). Schedule 2.14 sets
-------------
forth a true, correct and complete list of all such Permits, copies of which
previously have been delivered by the Seller to the Buyer. The Seller has not
engaged in any activity which would cause or, to the knowledge of the Selling
Parties, permit revocation or suspension of any such Permit and no action or
proceeding looking to or contemplating the revocation or suspension of any such
Permit is pending or threatened. There are no existing defaults or Inchoate
Defaults by the Seller under any Permit. The Selling Parties have no knowledge
of any default or claimed or purported or alleged default or Inchoate Defaults
on the part of any party in the performance of any obligation to be performed or
paid by any party under any Permit. Except as set forth in Schedule 2.14, the
--------------
consummation of the transactions contemplated by this Agreement will in no way
affect the continuation, validity or effectiveness of the Permits or require the
consent of any third party under any such Permit. The Seller is not in violation
of any law, regulation or ordinance (including but not limited to laws,
regulations or ordinances relating to building, zoning, land use or similar
matters) relating to its properties, the violation of which could have a
material adverse effect on the Assets or the business, properties, condition
(financial or otherwise) or prospects of the Seller. The business of the Seller
does not violate, in any material respect, and the Seller is not in violation
of, any federal, state, local or foreign laws, regulations or orders, the
violation or enforcement of which would have a material and adverse effect on
the Assets, business, properties, condition (financial or otherwise) or
prospects of the Seller. Except as set forth on Schedule 2.14, the Seller has
--------------
not received any notice or communication from any federal, state, foreign, or
local governmental or regulatory authority or otherwise of any such violation or
noncompliance and has not received any notice prior to such time of any
violation that has not been cured.
2.15 Employee Relations.
------------------
(a) The Seller is in compliance with all material federal,
state, local and foreign laws respecting employment and employment practices,
terms and conditions of employment, and wages and hours, and is not engaged in
any unfair labor practice, and there are no arrears in the payment of wages or
taxes or workers compensation assessments or penalties.
(b) Except as set forth on Schedule 2.15:
-------------
(i) none of Seller's Employees are represented by any
labor union;
-15-
<PAGE>
(ii) there is no unfair labor practice complaint against
the Seller pending before the National Labor Relations Board or any state,
foreign, or local agency affecting the Seller;
(iii) there is no pending labor strike or other material
labor trouble affecting the Seller (including but not limited to any
organizational campaign);
(iv) there is no material labor grievance pending against
or affecting the Seller;
(v) there are no pending organizing activities
respecting the Seller's Employees;
(vi) there are no pending arbitration proceedings arising
out of or under any collective bargaining agreement to which the Seller is a
party, or to the best knowledge of the Selling Parties, any basis for which a
claim may be made under any collective bargaining agreement to which the Seller
is a party affecting the Seller's Employees;
(vii) there is no pending litigation, or other proceeding
or basis for an unasserted claim against the Seller by any employee or group of
employees or independent contractor or group of independent contractors which is
based on claims arising out of any employee's or group of employees' employment
relationship with the Seller or any independent contractor's or group of
independent contractors' independent consulting relationship with the Seller
(insofar as such relationship pertains to the Business of the Seller), including
but not limited to claims for contract, tort, discrimination, employee benefits,
commissions, wrongful termination, age discrimination, sexual harassment, sexual
discrimination and any and all common law or statutory claims; and
(viii) since March 1, 1999 there have been no new employees
or consultants hired by the Seller.
(c) The Seller has not violated the Worker Adjustment and
Retraining Notification Act, 29 U.S.C. Sections 2101-09 (the "WARN ACT") or any
similar state or local law. Since July 1, 1998, the Seller has terminated twelve
(12) employees.
2.16 Absence of Certain Changes or Events. Since December
------------------------------------
31, 1998, the Selling Parties have operated the Business in the ordinary course
and, except as set forth on Schedule 2.16, there has not been:
(a) any change in the business, financial condition or
results of operations of the Business that has had or could reasonably be
expected to have a Material Adverse Effect;
-16-
<PAGE>
(b) any change in any of the Assets or any change in the
manner of conducting the Business that has had or could reasonably be expected
to have a Material Adverse Effect;
(c) any damage, destruction or loss (whether or not covered
by insurance) that has had or could reasonably be expected to have a Material
Adverse Effect;
(d) any material change in the accounting methods or
principles of the Seller that would be required to be disclosed under generally
accepted accounting principles;
(e) any material transaction made by the Seller relating to
the Assets or Business (including the acquisition or disposition of Assets)
other than in the ordinary course of business consistent with past practice or
as otherwise permitted or contemplated by this Agreement;
(f) any lien, security interest or other Encumbrance created
or assumed by the Seller on any of the Assets;
(g) any recall notices authorized or issued for any products
relating to the Business or any safety investigations issued relating to the
Business;
(h) any notice of litigation, warranty claim or products
liability claim relating to the Business;
(i) any increases in salary or other disbursements or
distributions in any manner or form to shareholder, members, directors, officers
or employees (or any related party to any of the foregoing) of Seller or any
affiliated or related entities;
(j) any entering into, amendment or termination of any
material contract, agreement, lease, franchise, security, instrument, permit or
license between the Seller and any party that has had or could reasonably be
expected to have a Material Adverse Effect; or
(k) any existing agreement or arrangement made by the Seller
to take any action that would cause any representations or warranty in this
Section 2.16 to be untrue or incorrect.
2.17 Customers. The Seller has heretofore provided to the
---------
Buyer a true, correct and complete list of the names and addresses of all
customers of the Seller together with the annual dollar value of their accounts.
Except as set forth on Schedule 2.16 hereto, none of the 15 customers which
--------------
accounted for the largest dollar volume of purchases from the Seller for the
twelve month periods ended December 31, 1997 and December 31, 1998,
respectively, has notified the Seller that it intends to discontinue its
relationship with the Seller nor, to the best of the Selling Parties' knowledge,
does there exist any actual or threatened termination, cancellation or
limitation of, or any modification or change in, the business relationship of
the Seller with any such customer nor does there exist a present condition or
state of facts or circumstances known
-17-
<PAGE>
to the Seller involving such customers which would materially adversely affect
the Business or prevent the Buyer from conducting the Business after the
consummation of the transactions contemplated by this Agreement in essentially
the same manner in which it has heretofore been conducted by the Seller. The
Seller has no consignment sales in effect as of the date hereof and no customer
has any return rights except as set forth on Schedule 2.13(a).
----------------
2.18 Suppliers. Except as set forth in Schedule 2.18 the
--------- -------------
Seller is not a party to any requirements contract relating to the purchase of
inventory, finished goods or other property used in the conduct of the Business.
None of the Seller's suppliers has notified the Seller that it intends to
discontinue its relationship with the Seller, nor raise its prices so as to
materially adversely affect the Business nor, to the best of the Selling
Parties' knowledge, does there exist any actual or threatened termination,
cancellation or limitation of, or any modification or change in, the business
relationship of the Seller with any such supplier, nor does there exist a
present condition or state of facts or circumstances known to the Selling
Parties involving such suppliers which would materially adversely affect the
Business or prevent the Buyer from conducting the Business after the
consummation of the transactions contemplated by this Agreement in essentially
the same manner in which it has heretofore been conducted by the Seller.
2.19 Prepayments and Deposits. Except as set forth on
--------------------------
Schedule 2.19, the Seller has no prepayments or deposits from customers for
- --------------
products to be shipped, or services to be performed, by the Seller after the
date hereof.
2.20 Trade Names and Other Intangible Property.
-----------------------------------------
(a) Schedule 2.20 attached hereto sets forth a true, correct
--------------
and complete list and a description of all Intangible Property. True, correct
and complete copies of all licenses and other agreements relating to the
Intangible Property have been previously delivered by the Seller to the Buyer.
The Selling Parties have no knowledge of any default or claimed or purported or
alleged default or state of facts which with notice or lapse of time or both
would constitute a default on the part of any party in the performance of any
obligation to be performed or paid by any party under any such license or
agreement. During the past five years the only name by which the Seller has been
known or which the Seller has used is its corporate name set forth in the
preamble of this Agreement.
(b) Except as otherwise disclosed in Schedule 2.20 attached
-------------
hereto, the Seller is the sole and exclusive owner, free and clear of all liens,
claims and restrictions, of all Intangible Property and all designs, permits,
labels and packages used on or in connection therewith. The Intangible Property
owned by the Seller is sufficient to conduct the Business, as presently
conducted. The Seller has received no notice of, and has no knowledge of any
basis for, a claim against it that any of its operations, activities, products
or publications infringes on any patent, trademark, trade name, copyright or
other property right of a third party, or that it is illegally or otherwise
using the trade secrets, formulae or any property rights of others. Except as
otherwise disclosed in Schedule 2.20, the Seller (i) has no disputes with
--------------
or claims against any third party for infringement by such third party of any
trade name or other Intangible Property of
-18-
<PAGE>
the Seller, and (ii) is not obligated or under any liability whatsoever to make
any payments by way of royalties, fees or otherwise to any owner or licensee of,
or other claimant to, any patent, trademark, trade name, copyright or other
property right, with respect to the use thereof or in connection with the
conduct of the Business or otherwise. The Seller has taken all steps reasonably
necessary to protect its right, title and interest in and to the Intangible
Property. Except as set forth in Schedule 2.20, the consummation of the
--------------
transactions contemplated by this Agreement (including any required financing)
will in no way affect the continuation, validity or effectiveness of the
Intangible Property or require the consent of any third party in respect of the
Intangible Property.
2.21 Employee Benefit Plans.
----------------------
(a) ERISA. Except as set forth on Schedule 2.21, neither
----- ------------
the Seller nor any person, firm, corporation or entity which is (or within the
past five years has been) a member with the Seller of a "controlled or
affiliated group", within the meaning of Section 414(b), (c), (m), (n) or (o) of
the Internal Revenue Code of 1986, as amended (the "CODE"), has maintained,
sponsored or contributed to any "pension plan" within the meaning of Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), any "welfare plan" within the meaning of Section 3(1) of ERISA, or
any other employee benefit plan, program, practice or arrangement, whether or
not subject to ERISA (a "NON-ERISA PLAN") (such pension plans, welfare plans and
non-ERISA plans of the Seller being herein referred to as the "EMPLOYEE PLANS").
Except as set forth on Schedule 2.21, the Seller has provided the Buyer with a
--------------
true, correct and complete copy of each pension plan, each welfare plan and each
non-ERISA plan listed on such Schedule, together with a copy of the most recent
summary plan description and annual report (if applicable) with respect to each
such plan. Except as set forth on Schedule 2.21, each pension plan listed on
--------------
such Schedule is a "qualified plan" within the meaning of Section 401 of the
Code. Except as set forth on Schedule 2.21, each pension plan, each welfare plan
-------------
and each non-ERISA plan listed on such Schedule has been administered in
accordance with its terms, and each pension plan and welfare plan has been
operated and administered in accordance with all applicable requirements of
ERISA and the Code. Without limiting the generality of the foregoing, no
trustee, administrator, sponsor, or other party-in-interest or disqualified
person, has engaged or participated in any "prohibited transaction", as that
term is defined in Section 4975(c)(1) of the Code, with respect to any pension
plan or welfare plan listed on Schedule 2.21. Without limiting the generality of
-------------
the foregoing, in connection with all welfare or non-ERISA plans which are
subject to continuation coverage under Section 4980B of the Code, all notices
and elections with respect to such coverage have been made in compliance with
the requirements of Section 4980B. With respect to each "defined benefit pension
plan", as defined in Section 3(35) of ERISA, identified on Schedule 2.21: (i)
--------------
the fair market value of the assets thereof as of the date hereof is as set
forth on such Schedule; (ii) the present value of all accrued benefits
thereunder, determined as if such pension plan terminated on the date hereof, is
as set forth on Schedule 2.21; (iii) if any such plan is a "multiemployer plan",
-------------
as defined in Section 3(37) of ERISA, the present value of the contingent
liability of the Seller both in the event of the termination of such plan and in
the event that the Seller withdraws therefrom is as set forth on Schedule 2.21;
-------------
(iv) no such plan has incurred an "accumulated funding deficiency", as such term
is defined in Section 302 of ERISA,
-19-
<PAGE>
and (v) no such pension plan has terminated, nor has any "reportable event",
within the meaning of Section 4043 of ERISA, occurred with respect to such plan.
All contributions for all periods ending prior to the date hereof (including
periods from the first day of the current plan year to the date hereof) will be
made prior to the date hereof by the Seller in accordance with past practice
with respect to pension plans, welfare plans and non-ERISA plans. All insurance
premiums (including premiums to the Pension Benefit Guaranty Corporation) have
been paid in full, subject only to normal retrospective adjustments in the
ordinary course of business, with regard to applicable plans for policy years or
other applicable policy periods ending on or before the date hereof.
(b) Claims and Litigation. Except as set forth on Schedule
---------------------- --------
2.21, to the best of the Selling Parties' knowledge, there are no threatened
- ----
or pending claims, suits or other proceedings by present or former employees of
Seller, plan participants, beneficiaries or spouses of any of the above, the
Internal Revenue Service, the Pension Benefit Guaranty Corporation, or any other
pension or entity involving any Employee Plan, including claims against the
assets of any trust, involving any Employee Plan, or any rights or benefits
thereunder, other than ordinary and usual claims for benefits to participants or
beneficiaries, including claims pursuant to domestic relations orders and there
is no basis for any legal action, proceeding or investigation with respect to
such plans.
2.22 Disclosure. No representation or warranty by the
----------
Selling Parties in this Agreement or in any exhibit hereto, or in any list,
statement, document or information set forth in or attached to any Schedule
delivered or to be delivered pursuant to this Agreement, contains or will
contain any untrue statement of a material fact or omits or will omit any
material fact necessary in order to make the statements contained therein not
misleading. The Selling Parties have disclosed to the Buyer all material facts
pertaining to the transactions contemplated by this Agreement.
2.23 Brokers. All negotiations relative to this
-------
Agreement and the transactions contemplated hereby have been carried on by the
Seller without the intervention of any other person in such manner as to give
rise to any valid claim for a finder's fee, brokerage commission or other like
payment.
2.24 Preservation of Assets. The Seller has not sold,
------------------------
assigned or transferred any of the Assets, other than in the ordinary course of
business, or declared or paid any dividend or other distribution in respect of
shares of capital stock or made any purchase, redemption or other acquisition,
directly or indirectly, of any outstanding shares of its capital stock, since
January 1, 1997. Since January 1, 1999 all of the Fixed Assets have been
maintained and serviced in accordance with normal practice and repairs
maintenance and betterments to such Fixed Assets have been made in the normal
course of business.
-20-
<PAGE>
2.25 Environmental Compliance.
------------------------
(a) The Seller has obtained all permits, licenses and other
authorizations required under Federal, state and local laws, relating to
protection of the Environment (as defined below), including laws relating to any
Release (as defined below) of or presence of pollutants, contaminants, or
hazardous or toxic materials or wastes into or in soil, surface waters,
groundwaters, land, stream sediments, surface or subsurface strata, ambient air,
and/or any environmental medium (the "ENVIRONMENT") or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or waste. Schedule 2.25 hereto sets forth a complete and accurate list
-------------
of all such permits, licenses and other authorizations obtained by the Seller,
copies of which have been delivered to the Buyer. The Seller is in full
compliance with all terms and conditions of such permits, licenses and other
authorizations. To the best of the Selling Parties' knowledge, except as set
forth on Schedule 2.25, there are no proposed or pending changes in the federal,
-------------
state, county or local laws, regulations, standards, or in the Seller's permits,
licenses or authorizations relating to pollution or protection of the
Environment that would increase the present costs of compliance with such laws
or change any methods of operation.
(b) Except as indicated on Schedule 2.25 neither the
---------------
Seller nor, to the best of the Selling Parties' knowledge, after due inquiry,
any of the Seller's, employees, agents, contractors or subcontractors have,
used, generated, processed, stored, transported, recycled, Released or otherwise
handled any Hazardous Materials (as defined below) except as permitted by law,
on or about any real property related to the Seller's business, including, but
not limited to, real property formerly owned or leased by the Seller
(collectively, the "SELLER REAL PROPERTY") and the facilities now or formerly
leased or operated by the Seller (collectively, the "Seller Facilities").
Additionally, except as indicated on Schedule 2.25, neither the Seller
--------------
Facilities nor the Seller Real Property is being used or has ever previously
been used for the generation, use, processing, storage, transportation,
recycling, Release or handling of any Hazardous Materials. In addition, except
as indicated on Schedule 2.25, neither the Seller Facilities nor the Seller
-------------
Real Property has ever been affected by any Hazardous Materials Contamination or
Environmental Condition. The Seller, in the conduct of its business, is and has
been in compliance with all Environmental Laws. Notwithstanding any statement or
representation to the contrary in any affidavit or other document, the Seller
affirmatively represents that as of the date hereof, the Seller has made all
filings required by RCRA and that there have been no failures by the Seller to
timely report under CERCLA ss. 103 or RCRA ss. 304. The Seller has not received
any written notice from any governmental authority or any other person
respecting or related to any actual, threatened or potential Release or presence
of any Hazardous Materials or any non-compliance with any Environmental Laws as
to which any such claimed noncompliance presently exists. Notwithstanding the
preceding sentence, the Seller has not received any notice from any governmental
authority respecting noncompliance with RCRA and has not been notified that it
is a potentially responsible party in connection with any site or facility
governed thereby or has any liability for offsite disposal of any Hazardous
Material. No investigation, administrative proceeding, consent order or
agreement, limitation or settlement with respect to Hazardous Materials,
Hazardous Materials Contamination or Environmental Condition is, to the best of
the
-21-
<PAGE>
Selling Parties' knowledge, proposed, threatened, anticipated or in force with
respect to its business, nor has such property ever been on any Federal or state
"Superfund" or "Super Lien" list.
As used in this Section 2.25, "DUE INQUIRY" shall mean that Selling Parties
have made inquiry of all of Seller's executives, corporate officers and
directors and any employee or agent of Seller with responsibility for
environmental matters.
As used herein "HAZARDOUS MATERIALS" include any (i) "HAZARDOUS WASTE" as
defined by The Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section
6901 et seq.), as amended from time to time ("RCRA"), and regulations
-------
promulgated thereunder; and "Hazardous Substance" as defined by The
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. Section 9601 et seq.), as amended from time to time ("CERCLA"), and
------
regulations promulgated thereunder; (ii) asbestos; (iii) polychlorinated
biphenyls; (iv) any substance, the presence of which on the premises of the
Seller's business, is prohibited by applicable law; (v) oil, petroleum or any
petroleum products or by-products; (vi) any other substance which, according to
applicable law, requires special handling or notification of any Federal, state
or local governmental entity in its collection, processing, handling, storage,
transport, treatment or disposal or exposure thereto; (vii) any substance, which
if not properly disposed of, may pollute, contaminate, harm or have any
detrimental effect on the Environment; (viii) underground storage tanks, whether
empty, filled or partially filled with any substance; and (ix) any other
pollutant, toxic substance, hazardous substance, hazardous waste, hazardous
material or hazardous substance as regulated by or defined in or pursuant to any
Environmental law or any other Federal, state, or local environmental law,
regulation, ordinance, rule, or by-law, whether existing on or prior to the date
hereof.
As used herein, "HAZARDOUS MATERIALS CONTAMINATION" shall mean, with
respect to any premises, building or facilities or, the Environment,
contamination by a Release or the presence of Hazardous Materials.
As used herein, "ENVIRONMENTAL CONDITION" shall mean any condition with
respect to the Environment on or off the Seller Real Property and Seller
Facilities, whether or not yet discovered, which could or does result in any
damage, loss, cost, expense, claim, demand, order, or liability to or against
the parties hereto by any third party (including, without limitation, any
government entity), including, without limitation, any condition resulting from
the operation of Seller's business and/or the operation of the business of any
other property owner or operator in the vicinity of the Seller Real Property and
Seller Facilities and/or any activity or operation formerly conducted by any
person or entity on or off the Seller Real Property and Seller Facilities.
As used herein, "RELEASE" shall mean any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping
or disposing.
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<PAGE>
As used herein, "ENVIRONMENTAL LAWS" shall mean any environmental or health
and/or safety-related law, regulation, rule, ordinance, or by-law at the
Federal, state, or local level, whether existing as of the date hereof,
previously enforced, or subsequently enacted, including but not limited to: (i)
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 USCA
601 et seq.; (ii) Solid Waste Disposal Act, as amended by the Resource
-------
Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid
Waste Amendments of 1984, 42 USCA 6901 et seq.; (iii) Federal Water Pollution
------
Control Act of 1972 as amended by the Clean Water Act of 1977, as amended, 33
USCA 1251 et seq.; (iv) Toxic Substances Control Act of 1976, as amended, 15
------
USCA 2601 et seq.; (v) Emergency Planning and Community Right-to-Know Act of
------
1986, 42 USCA 11001 et seq.; (vi) Clean Air Act of 1966, as amended by the Clean
------
Air Act of 1986, as amended by the Clean Air Act Amendments of l990, 42 USCA
7401 et seq.; (vii) National Environmental Policy Act of 1970, as amended, 42
------
USCA 4321 et seq.; (viii) Rivers and Harbors Act of 1970, as amended, 33 USCA
------
401 et seq.; (ix) Endangered Species Act of 1973, as amended, 16 USCA 1531, et
------ --
seq; (x) Occupational Safety and Health Act of 1970, as amended, 29 USCA 651 et
- --- --
seq.; (xi) Safe Drinking Water Act of 1974, as amended, 42 USCA 300 et seq., and
- --- ------
any other federal, state, or local law, regulation, rule, ordinance or order
currently in existence which governs:
(i) the existence, cleanup and/or remediation of toxic
or hazardous materials;
(ii) the Release, emission, discharge or presence of
Hazardous Materials into or in the Environment;
(iii) the control of Hazardous Materials; or
(iv) the use, generation, transport, treatment, storage,
disposal, removal or recovery of Hazardous Materials.
2.26 Purchase for Investment. The Shareholder represents
------------------------
that he is an "accredited investor", within the meaning of Regulation D under
the Securities Act of 1933, as amended (the "1933 ACT"), and is acquiring the
Unidigital Stock for his own account, for investment purposes only, and not with
a view to the resale or distribution of all or any part thereof. The Shareholder
has not offered or sold any portion of the Unidigital Stock and has no present
plan or intention of dividing such Unidigital Stock with others or reselling or
otherwise disposing of any portion of the Unidigital Stock, either currently or
after the passage of a fixed or determinable period of time, or upon the
occurrence or nonoccurrence of any predetermined event or circumstance. The
Shareholder agrees not to distribute or to transfer any of the Unidigital Stock
in the United States except in compliance with all applicable United States
federal and state securities laws. The Shareholder further recognizes that the
Unidigital Stock will not be registered under the 1933 Act or the securities
laws of any state, and the transfer of the same will be restricted under such
laws, and the Unidigital Stock cannot be sold except pursuant to an effective
registration statement under such laws or an available exemption from such
-23-
<PAGE>
registration, and the certificates representing the Unidigital Stock will bear a
legend to such effect. The Shareholder acknowledges and understands that
Unidigital is under no obligation to register the Unidigital Stock. The
Shareholder is aware of Unidigital's business affairs and financial condition,
has had the opportunity to ask questions of Unidigital's management with respect
to its business affairs and financial condition and has acquired sufficient
information (including, but not limited to, Unidigital's Form 10-KSB for the
fiscal year ended August 31, 1998, Unidigital's 1998 annual report, Unidigital's
1998 proxy statement and Unidigital's Form 10-Q for the quarter ended November
30, 1998) about Unidigital to reach an informed and knowledgeable decision to
acquire the Unidigital Stock.
2.27 Solvency. The Seller is not now insolvent, and will
--------
not be rendered insolvent by any of the transactions contemplated by this
Agreement. In addition, immediately after giving effect to the consummation of
the transactions contemplated by this Agreement, (i) the Seller will be able to
pay its debts as they become due, (ii) the property of the Seller does not and
will not constitute unreasonably small assets, and the Seller will not have
unreasonably small assets and will not have insufficient assets with which to
conduct its present or proposed business, and (iii) taking into account all
pending and threatened litigation, final judgments against the Seller in actions
for money damages are not reasonably anticipated to be rendered at a time when,
or in amounts such that, the Seller will be unable to satisfy any such judgments
promptly in accordance with their terms (taking into account the maximum
probable amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered) as well as all other
obligations of the Seller. The cash available to the Seller, after taking into
account all other anticipated uses of the cash of the Seller, will be sufficient
to pay all such judgments promptly in accordance with their terms. As used in
this Section 2.27, (x) "insolvent" means that the sum of the present fair
saleable value of the Seller's assets is less than the Seller's debts and other
probable liabilities, and (ii) the term "debts" includes any legal liability,
whether matured or unmatured, liquidated or unliquidated, absolute, fixed or
contingent, disputed or undisputed or secured or unsecured.
3. Representations of the Buyer and Unidigital
-------------------------------------------
Representations and warranties made by the Buyer and
Unidigital herein or in any instrument or document furnished in connection
herewith shall survive the Closing until (and including) the third anniversary
of the Closing Date. The Buyer and Unidigital represent and warrant to the
Seller as follows:
3.1 Organization and Authority. Each of the Buyer and
----------------------------
Unidigital is duly organized and validly existing and in good standing under the
laws of the state of Delaware, and has requisite power and authority to own its
properties and to carry on its business as now being conducted. Each of the
Buyer and Unidigital has full power to execute and deliver this Agreement, and
the Instrument of Assumption and to consummate the transactions contemplated
hereby and thereby.
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<PAGE>
3.2 Authorization. The execution and delivery of this
-------------
Agreement by the Buyer and Unidigital and the agreements provided for herein to
which each is a party, and the consummation by the Buyer and Unidigital of all
transactions contemplated hereby, have been duly authorized by all requisite
corporate action. This Agreement and all such other agreements and written
obligations entered into and undertaken in connection with the transactions
contemplated hereby constitute the respective valid and legally binding
obligations of the Buyer and Unidigital, enforceable against them in accordance
with their respective terms except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors
rights generally. The execution, delivery and performance of this Agreement and
the agreements provided for herein, and the consummation by the Buyer and
Unidigital of the transactions contemplated hereby and thereby, will not, with
or without the giving of notice or the passage of time or both, (a) violate the
provisions of any law, rule or regulation applicable to the Buyer or Unidigital;
(b) violate the provisions of the organizational documents of the Buyer or
Unidigital; (c) violate any judgment, decree, order or award of any court,
governmental body or arbitrator applicable to the Buyer or Unidigital; or (d)
except as set forth in Schedule 3.2 hereof, conflict with or result in the
breach or termination of any term or provision of, or constitute a default
under, or cause any acceleration under, or cause the creation of any lien,
charge or encumbrance upon the properties or assets of the Buyer or Unidigital
pursuant to, any indenture, mortgage, deed of trust or other agreement or
instrument to which it or its properties is a party or by which the Buyer or
Unidigital is or may be bound. Schedule 3.2 attached hereto sets forth a true,
------------
correct and complete list of all consents and approvals of third parties that
are required of the Buyer and Unidigital in connection with the consummation by
the Buyer and Unidigital of the transactions contemplated by this Agreement.
3.3 Regulatory Approvals. All consents, approvals,
---------------------
authorizations and other requirements prescribed by any law, rule or regulation
which must be obtained or satisfied by the Buyer and Unidigital and which are
necessary for its consummation by the Buyer and Unidigital of the transactions
contemplated by this Agreement have been obtained and satisfied.
3.4 Brokers. All negotiations relative to this Agreement
-------
and the transactions contemplated hereby have been carried on by the Buyer and
Unidigital without the intervention of any other person in such manner as to
give rise to any valid claim for a finder's fee, brokerage commission or other
like payment.
3.5 No Material Change. Since Unidigital's Form 10Q for
------------------
the quarter ended November 30, 1998, Unidigital has suffered no Material Adverse
Effect.
3.6 No Violation. Unidigital has received no notice that
------------
it is in violation of any laws, rules or regulations relating to the 1993 Act or
the Securities Exchange Act of 1934.
-25-
<PAGE>
4. Confidentiality; Public Announcements
-------------------------------------
4.1 Confidentiality. None of the information not
---------------
previously disclosed to the public or not generally known to persons engaged in
the business of the Seller or the Buyer which shall have been furnished by the
Buyer or the Seller to the other party in connection with the transactions
contemplated hereby shall be disclosed by such receiving party to any person
other than their respective employees, directors, attorneys, accountants or
financial advisors or other than as contemplated herein. In the event that the
transactions contemplated by this Agreement shall not be consummated, all such
information which shall be in writing shall be returned to the party furnishing
the same, including, to the extent reasonably practicable, all copies or
reproductions thereof which may have been prepared, and neither party shall at
any time thereafter disclose to third parties, or use, directly or indirectly,
for its own benefit, any such information, written or oral, about the business
of the other party hereto.
4.2 Public Announcements. Any public announcement, press
--------------------
release or similar publicity with respect to this Agreement or the transactions
contemplated hereby shall be issued, if at all, at such time and in such manner
as the Buyer determines. Unless consented to by the Buyer in advance or required
by applicable law, prior to the Closing, the Selling Parties shall keep this
Agreement strictly confidential and may not make any disclosure related to this
Agreement to any person. The Selling Parties and the Buyer shall consult with
each other concerning the means by which the Seller's Employees, customers,
suppliers and others having a business relationship with the Selling Parties
will be informed of the transactions contemplated hereby, and the Buyer shall
have the right to be present for any such communication. The Seller hereby
acknowledges that this Agreement may be filed by Unidigital as an exhibit to
certain registration statements and/or reports filed by it pursuant to the 1933
Act or the Securities Exchange Act of 1934, as amended.
5. Employee Matters
----------------
5.1 Seller's Employees. The Seller has furnished to the
------------------
Buyer a list containing the names of Seller's Employees, including each such
employee's status, social security number and current compensation. The Selling
Parties hereby acknowledge that the Buyer and Unidigital have no current plans
to offer employment to all of the Seller's Employees affected by the
transactions contemplated hereby. The Buyer and/or Unidigital may, however,
offer employment to some of the Seller's Employees under such terms and
conditions as may be set by the Buyer or Unidigital, as the case may be. The
Selling Parties agree and acknowledge that neither the Buyer nor Unidigital
shall assume any collective bargaining agreement between the Seller and any of
the Seller's Employees, notwithstanding any specific terms to the contrary
contained in any such collective bargaining agreement.
5.2 Future Changes. Except as otherwise set forth herein,
--------------
nothing in this Section 5 shall require the Buyer to retain any of Seller's
Employees for any period of time after the date hereof. Subject to requirements
of applicable law, the Buyer reserves the right at any
-26-
<PAGE>
time after the date hereof to terminate such employment and amend, modify or
terminate any term or condition of employment, including without limitation, any
employee benefit plan, program, policy, practice or arrangement.
5.3 Plant Closing. None of the Selling Parties has,
--------------
directly or indirectly, taken or omitted to take any action which may result in
the Seller's or the Buyer's liability to any person or entity under the WARN
Act. The term "any action" does not include the sale and acquisition
contemplated by this Agreement and the liability under the WARN Act, if any,
which results from the Seller's termination of employees in connection with such
sale and acquisition is the sole responsibility of the Seller.
5.4 Reporting of Data. The Buyer and the Seller shall
------------------
compile and furnish to each other such actuarial and employee data as shall be
required from time to time for each party to perform and fulfill its obligations
under this Section 5.
5.5 Pending Litigation. With respect to any litigation
-------------------
pending, or to the knowledge of the Selling Parties threatened, as set forth in
Schedule 2.21 hereto, which claim alleges violation of any nondiscrimination
- --------------
laws, collective bargaining agreements, employment contract and termination
thereof or wage and hour laws, the Seller shall fully defend such claim. The
Seller shall be responsible for any monetary damages awarded in connection
therewith. It is understood by the parties that if the Seller chooses to settle
any matter relating to any of the foregoing, including the terms and conditions
thereof of any back pay claims, such settlement shall be at the sole discretion
of the Seller and the Seller shall be solely responsible for the payment or
performance of any such settlement terms.
6. Further Agreements of the Parties
---------------------------------
6.1 Access to Information. Prior to the Closing, Buyer
----------------------
may make such investigation of the business and properties of the Seller as
Buyer may desire, and upon reasonable notice, Seller shall give to Buyer and its
counsel, accountants and other representatives reasonable access, during normal
business hours throughout the period prior to the Closing, to the property,
books, commitments, agreements, records, files and personnel of the Seller, and
Seller shall furnish to Buyer during that period all copies of documents and
information concerning the Business as Buyer may reasonably request subject to
applicable law.
6.2 Other Action. Each of the parties shall use its best
------------
efforts to cause the fulfillment at the earliest practicable date but, in any
event, prior to the Closing Date, of all of the conditions to their respective
obligations to consummate the transactions under this Agreement.
6.3 Expenses. Except as otherwise specifically provided
--------
in this Agreement, Buyer and Seller shall bear their own respective expenses
incurred in connection with this Agreement and in connection with all
obligations required to be performed by each of them under this Agreement.
-27-
<PAGE>
6.4 Transfer Taxes. Any sales taxes, real property
---------------
transfer or gains taxes, recording fees or any other taxes payable as a result
of the sale of the Assets or any other action contemplated by this Agreement
shall be paid by the Seller.
6.5 Insurance - Risk of Loss. The Seller will maintain
------------------------
adequate insurance on the Fixed Assets until they are delivered to a place
designated by the Buyer. The risk of loss to the Fixed Assets shall remain with
Seller until delivery to Buyer.
6.6 Arbitration. All claims, demands and disputes between
-----------
the parties to this Agreement shall be arbitrated by a single arbitrator
appointed by the American Arbitration Association ("AAA") from its roster of
individuals who have at least ten (10) years experience in arbitrating
commercial matters, unless both parties agree on the selection of another
arbitrator who agrees to serve. The parties shall share the fees and costs of
the arbitrator equally. The arbitration shall be conducted in Manhattan, NY and
except as otherwise provided herein, shall be governed by the Rules for
Commercial Arbitration issued by the AAA, including those rules applicable to
the selection of arbitrators. The Arbitrator shall grant essential discovery and
shall provide for the exchange of witness lists and exhibit copies. The
arbitrator shall also conduct a pretrial conference and permit dispositive
motions. The arbitrator shall make findings of fact and shall state conclusions
of law sufficient to explain and support its disposition of the matters before
it. The arbitrator shall complete its proceedings and render its decision within
40 days after submissions of the dispute to it. The decision of the arbitrator
shall be final and binding on the parties and may be entered as a judgment by
any court of competent jurisdiction.
7. Conditions to Obligations of the Buyer
--------------------------------------
The obligations of the Buyer under this Agreement are subject
to the fulfillment, at the Closing, of the following conditions precedent, each
of which may be waived in writing in the sole discretion of the Buyer:
7.1 Continued Truth of Representations and Warranties of
-----------------------------------------------------
the Selling Parties: Compliance with Covenants and Obligations. The
- -------------------------------------------------------------------------
representations and warranties of the Selling Parties shall be true and correct
in all material respects at and as of the time of the Closing with the same
effect as though made again at, and as of, that time. The Seller shall have
performed and complied in all material respects with all covenants required by
this Agreement to be performed or complied with by it prior to or at the time of
the Closing.
7.2 Corporate and Shareholder Proceedings. All corporate,
-------------------------------------
shareholder and other proceedings required to be taken on the part of the Seller
to authorize or carry out this Agreement and to convey, assign, transfer and
deliver the Assets shall have been taken.
7.3 Other Governmental Approvals. All courts of law,
------------------------------
governmental agencies, departments, bureaus, commissions and similar bodies, the
consent, authorization or approval of which is necessary under any applicable
law, rule, order or regulation for the consummation by the Seller of the
transactions contemplated by this Agreement and the operation of the Seller's
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<PAGE>
business by the Buyer, shall have consented to, authorized, permitted or
approved such transactions including but not limited to, all clearance
certificates required pursuant to any applicable retail sales tax legislation
required in connection with the completion of the transactions contemplated
herein.
7.4 Consents of Lenders, Lessors and Other Third Parties.
----------------------------------------------------
The Seller shall have received the consents and approvals of all lenders,
lessors and other third parties whose consent or approval is required in order
for the Seller to consummate the transactions contemplated by this Agreement.
7.5 Adverse Proceedings. No action or proceeding by or
-------------------
before any court or other governmental body shall have been instituted by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of the Buyer to own or use the Assets after the Closing.
7.6 Opinion of Counsel. The Buyer shall have received an
------------------
opinion of Richard Feldman, Esq., counsel to the Seller, dated as of the Closing
Date, substantially in the form attached hereto as Exhibit C (the "OPINION OF
---------
SELLER'S COUNSEL").
7.7 Board of Directors and Shareholder Approval. The
-----------------------------------------------
directors and shareholder of the Seller shall have duly authorized the
transactions contemplated by this Agreement.
7.8 Title to Assets. At the Closing the Buyer shall
----------------
receive good and marketable title to all Assets, free and clear of all liens,
mortgages, pledges, security interests, restrictions, prior assignments,
encumbrances and claims of any kind or nature whatsoever.
7.9 Environmental Reports; Compliance with Laws. The
------------------------------------------------
Buyer shall not have received unsatisfactory environmental reports from its
environmental consultants and at any time prior to the Closing shall not have
discovered that any Seller Real Property fails to comply in any material respect
with all applicable federal, foreign, state or local environmental and wetlands
laws, rules and regulations.
7.10 Fire, Casualty or Eminent Domain. If any of the
------------------------------------
Assets are, prior to the Closing, either damaged by fire or other casualty
insured against or taken, in whole or in part, by eminent domain proceedings,
then the Buyer shall have the right to accept said Assets in their damaged or
diminished condition together with an assignment to Buyer of all insurance
and/or condemnation proceeds payable with respect to such fire, casualty or loss
or terminate this Agreement.
7.11 Due Diligence Review. The Buyer shall have completed
--------------------
a due diligence review of the Business, the results of which review are
satisfactory to the Buyer in Buyer's sole discretion.
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<PAGE>
7.12 Employment Agreements. The Shareholder and Kathy
----------------------
Wright shall have entered into an Employment Agreement with the Buyer
substantially in the form attached hereto as Exhibit D and D-1 (the "EMPLOYMENT
-----------------
AGREEMENT"), which shall include, without limitation, confidentiality, invention
assignment, non-solicitation and non-competition provisions.
7.13 Seller's Employees. Each of Seller's Employees listed
------------------
on Schedule 7.13 attached hereto has agreed to be employed by the Buyer as of
--------------
the Closing Date and has executed an agreement with the Buyer which contains
invention assignment, non-competition and non-solicitation provisions (the
"SELLER'S EMPLOYEES AGREEMENTS".)
7.14 Closing Deliveries. The Buyer shall have received
-------------------
at or prior to the Closing each of the following documents:
(a) the Bill of Sale;
(b) such instruments of conveyance, assignment and transfer,
and motor vehicle transfers and safety inspection certificates, if any, in form
and substance satisfactory to the Buyer, as shall be appropriate to convey,
transfer and assign to, and to vest in, the Buyer, good and marketable title to
the Assets other than the Intangible Property;
(c) such instruments of conveyance, assignment and transfer
in form and substance satisfactory to the Buyer and in a form appropriate to
file, if required, with the United States Office of Patents and Trademarks,
sufficient to convey, transfer and assign to, and to vest in, the Buyer, good
and marketable title to the Intangible Property;
(d) [Intentionally Omitted];
(e) all technical data, formulations, product literature and
other documentation relating to the Seller's business, all in form and substance
satisfactory to the Buyer;
(f) such contracts, files and other data and documents
pertaining to the Assets or the Business as the Buyer may reasonably request;
(g) copies of the general ledgers and books of account of
the Seller related to the Business, and all federal, state, local and foreign
income, franchise, capital, property and other tax returns filed by the Seller
with respect to the Assets since January 1, 1996.
(h) such certificates of the Seller's officers and such other
documents evidencing satisfaction of the conditions specified in this Section 7
as the Buyer shall reasonably request;
(i) certificate of the Secretary of the Seller attesting to
the incumbency of the Seller's officers, respectively, and the authenticity of
the resolutions authorizing the transactions contemplated by the Agreement and
the organizational documents of the Seller;
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<PAGE>
(j) the Employment Agreements, executed by the Shareholder;
(k) the Seller's Employees Agreements, executed by each of
the Seller's Employees listed on Schedule 7.13;
-------------
(l) the Opinion of Seller's Counsel;
(m) the Amendment of the Certificate of Incorporation of the
Seller to discontinue the use of the name "Peter X(+C) Limited" and to file any
instruments as may be necessary with any governmental authority to change their
corporate names and foreign qualifications; and
(n) such other documents, instruments or certificates as the
Buyer may reasonably request in order to evidence the accuracy of the Selling
Parties' representations or compliance by Seller with its covenants hereunder.
8. Conditions to Obligations of the Seller
---------------------------------------
The obligations of the Seller under this Agreement are subject
to the fulfillment, at the Closing, of the following conditions precedent, each
of which may be waived in writing at the sole discretion of the Seller:
8.1 Continued Truth of Representations and Warranties of
-----------------------------------------------------
the Buyer and Unidigital; Compliance with Covenants and Obligations. The
- --------------------------------------------------------------------------
representations and warranties of the Buyer and Unidigital in this Agreement
shall be true and correct in all material respects at and as of the time of the
Closing with the same effect as though made again at, and as of, that time. The
Buyer and Unidigital shall have performed and complied with all covenants
required by this Agreement to be performed or complied with by each of them
prior to the time of the Closing.
8.2 Corporate and Shareholder Proceedings. All corporate,
-------------------------------------
shareholder, legal and other proceedings required to be taken on the part of the
Buyer and Unidigital to authorize or carry out this Agreement shall have been
taken.
8.3 Approvals. All other governmental agencies,
---------
departments, bureaus, commissions and similar bodies, the consent, authorization
or approval of which is necessary under any applicable law, rule, order or
regulation for the consummation by the Buyer and Unidigital of the transactions
contemplated by this Agreement shall have consented to, authorized, permitted or
approved such transactions.
8.4 [Intentionally Omitted]
8.5 Adverse Proceedings. No action or proceeding by or
--------------------
before any court or other governmental body shall have been instituted by any
governmental body or person whatsoever which shall seek to restrain, prohibit
or invalidate the transactions contemplated by
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<PAGE>
this Agreement or which might affect the right of the Seller to transfer the
Assets or would affect the right of the Buyer to acquire the Assets.
8.6 Closing Deliveries. The Seller shall have received
-------------------
at or prior to the Closing each of the following documents:
(a) such certificates of the Buyer's officers and such other
documents evidencing satisfaction of the conditions specified in this Section 8
as the Seller shall reasonably request;
(b) a certificate of the Secretary or Assistant Secretary of
the Buyer attesting to the incumbency of the Buyer's officers, the authenticity
of the resolutions authorizing the transactions contemplated by this Agreement
and the organizational documents of the Buyer;
(c) such certificates of Unidigital's officers and such other
documents evidencing satisfaction of the conditions specified in this Section 8
as the Seller may reasonably request;
(d) a certificate of the Secretary or Assistant Secretary of
Unidigital attesting to the incumbency of Unidigital's officers, and the
authenticity of the resolutions authorizing the transactions contemplated by
this Agreement and the organizational documents of Unidigital;
(e) the Assumption Agreement executed by the Buyer and
accepted by the Seller;
(f) the Unidigital Stock;
(g) the Employment Agreements, executed by the Buyer;
(h) the Seller's Employees Agreements, executed by the Buyer;
(i) such other documents, instruments or certificates as the
Seller may reasonably request; and
(j) the opinion of Buyer's Counsel in the form attached
hereto as Exhibit E.
---------
9. Post-Closing Agreements
-----------------------
9.1 Proprietary Information.
-----------------------
(a) The Seller shall hold in confidence, and use its best
efforts to have all officers, shareholder, directors and personnel hold in
confidence, all knowledge and information of a secret or confidential nature
with respect to the Business, and shall not disclose,
-32-
<PAGE>
publish or make use of the same without the consent of the Buyer, except to the
extent that such information shall have become public knowledge other than by
breach of this Agreement by the Seller or by any other persons who have agreed
not to disclose, publish or make use of such information.
(b) The Seller agrees that the remedy at law for any breach
of this Section 9.1 would be inadequate and that the Buyer and/or Unidigital
shall be entitled to injunctive relief in addition to any other remedy it may
have upon breach of any provision of this Section 9.1.
(c) The foregoing to the contrary notwithstanding, no
information, written or oral, shall be construed or considered confidential
information and thereby subject to the restrictions of this Section 9.1 if such
information was (i) generally available to the public other than as a result of
a disclosure by the Seller or anyone to whom the Seller transmits the
information in violation hereof, (ii) in the possession of the Seller or known
to the Seller on a non-confidential basis prior to its disclosure to the Seller,
(iii) available to the Seller on a non-confidential basis from a source other
than the Buyer or Unidigital who is not bound by a confidentiality agreement
with the Buyer or Unidigital, as the case may be, or (iv) available in trade
publications, reference books or other resources and which may be compiled by
any person's decisions of preparing a report or memorandum containing such
information.
9.2 Solicitation or Hiring of Former Employees. Except
--------------------------------------------
as provided by law or with the written consent of the Buyer, for a period of
three years after the date hereof, the Seller and any persons or entities that
are not natural persons, that directly or indirectly, through one or more
intermediaries, control, are controlled by, or are under common control with,
the Seller (the "CORPORATE AFFILIATES"), shall not solicit any person who was a
Seller's Employee on the date hereof, and has been employed, and not terminated
without cause, by the Buyer, to terminate his employment with the Buyer or to
become an employee of the Seller or its Corporate Affiliates or hire any person
who was such an employee on the date hereof.
9.3 Non-Competition Agreement.
-------------------------
(a) For a period of five (5) years after the date hereof,
neither the Shareholder, the Seller nor any Corporate Affiliate thereof shall
directly or indirectly (i) manufacture, market or sell any product which has the
same or substantially the same function and primary application as any existing
or proposed product manufactured, marketed or sold by the Seller on or prior to
the date hereof or (ii) engage in, manage, operate, be connected with or acquire
any interest in, as an employee, consultant, advisor, agent, owner, partner,
co-venturer, principal, director, shareholder, lender or otherwise, any business
competitive with the business of the Seller, Unidigital or the Buyer as
conducted on the date hereof (a "COMPETITIVE BUSINESS"), in the United States or
any other country in which the Seller, Unidigital or the Buyer conducted
business during the two years prior to the date hereof, except that the
Shareholder, the Seller and its Corporate Affiliates may own, in the aggregate,
not more than 1% of the outstanding shares of any publicly held corporation
which is a Competitive Business which has shares listed for trading
-33-
<PAGE>
on a securities exchange registered with the Securities and Exchange Commission
or through the automatic quotation system of a registered securities
association.
(b) The parties hereto agree that the duration and geographic
scope of the non-competition provision set forth in this Section 9.3 are
reasonable. In the event that any court determines that the duration or the
geographic scope, or both, are unreasonable and that such provision is to that
extent unenforceable, the parties hereto agree that the provision shall remain
in full force and effect for the greatest time period and in the greatest area
that would not render it unenforceable. The parties intend that this
non-competition provision shall be deemed to be a series of separate covenants,
one for each and every county of each and every state of the United States of
America and each and every political subdivision of each and every country
outside the United States of America where this provision is intended to be
effective. The Seller agrees that damages are an inadequate remedy for any
breach of this provision and that the Buyer shall, whether or not it is pursuing
any potential remedies at law, be entitled to equitable relief in the form of
preliminary and permanent injunctions without bond or other security upon any
actual or threatened breach of this non-competition provision. If the Seller or
any Corporate Affiliate shall violate this Section 9.3, the duration of this
Section 9.3 automatically shall be extended as against such violating party for
a period equal to the period during which such party shall have been in
violation of this Section 9.3. The covenants contained in this Section 9.3 are
deemed to be material and the Buyer is entering into this Agreement relying on
such covenants.
(c) The parties hereto agree that if, during the first five
years after the date hereof the Buyer is in material default in respect of an
obligation to the Selling Parties which default continues after notice and a
reasonable opportunity to cure the Selling Parties shall not be bound by the
provisions of this Section 9.3 only as it applies to customers of the Buyer for
whom Seller would receive credit towards an Earnout Payment.
9.4 Sharing of Data. The Seller shall have the right for
---------------
a period of seven years following the date hereof to have reasonable access to
such books, records and accounts, including financial and tax information,
correspondence, production records, employment records and other similar
information as are transferred to the Buyer pursuant to the terms of this
Agreement for the limited purposes of concluding its involvement in the business
of the Seller prior to the date hereof and for complying with its obligations
under applicable securities, tax, environmental, employment or other laws and
regulations. The Buyer and/or Unidigital shall have the right for a period of
seven years following the date hereof to have reasonable access to those books,
records and accounts, including financial and tax information, correspondence,
production records, employment records and other records which are retained by
the Seller pursuant to the terms of this Agreement to the extent that any of the
foregoing relates to the Business transferred to the Buyer hereunder or is
otherwise needed by the Buyer and/or Unidigital in order to comply with its
obligations under applicable securities, tax, environmental, employment or other
laws and regulations.
9.5 Cooperation in Litigation. Each party hereto will
--------------------------
fully cooperate with the other in the defense or prosecution of any litigation
or proceeding already instituted or which may
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<PAGE>
be instituted hereafter against or by such party relating to or arising out of
the conduct of the Business prior to or after the date hereof (other than
litigation arising out of the transactions contemplated by this Agreement and
except as otherwise expressly provided herein). The party requesting such
cooperation shall pay the out-of-pocket expenses (including legal fees and
disbursements) of the party providing such cooperation and of its officers,
directors, employees and agents reasonably incurred in connection with providing
such cooperation, but shall not be responsible to reimburse the party providing
such cooperation for such party's time spent in such cooperation or the salaries
or costs of fringe benefits or similar expenses paid by the party providing such
cooperation to its officers, directors, employees and agents while assisting in
the defense or prosecution of any such litigation or proceeding.
9.6 Customer and Other Business Relationships. The
-----------------------------------------------
Selling Parties will cooperate with the Buyer in its efforts to continue and
maintain, with lessors, licensors, customers, suppliers and other business
associates of any of the Selling Parties, the same business relationships with
the Buyer after the Closing as maintained with such Selling Party before the
Closing, with respect to the business to be carried on by the Buyer utilizing
the Assets. The Selling Parties will refer to the Buyer all inquiries relating
to the Business from customers and all such other persons. The Selling Parties
will not take any action designed or intended to have the effect of discouraging
any customer or such other person from continuing or maintaining the same such
business with the Buyer after the Closing. The Selling Parties shall use their
best efforts to satisfy any liability or obligation not assumed by the Buyer
hereunder in a manner which is not detrimental to the Buyer's relationships with
suppliers and vendors.
9.7 Subrogation. If the Buyer or Unidigital becomes
-----------
liable for or suffers any damage with respect to any matter that was covered by
insurance maintained by the Selling Parties at or before the Closing, the Buyer
and Unidigital, as the case may be, shall be and hereby are subrogated to any
rights of the Selling Parties under such insurance coverage. The Selling Parties
shall promptly remit to the Buyer or Unidigital, as the case may be, any
insurance proceeds any of them may receive on account of any such liability or
damage.
10. Indemnification and Reimbursement
---------------------------------
10.1 Indemnification.
---------------
(a) The Selling Parties shall indemnify, defend and hold
harmless the Buyer and any parent, subsidiary or affiliate thereof and all
directors, officers, employees, agents and consultants of each of the foregoing
(collectively, the "BUYER GROUP") from and against all demands, claims, actions
or causes of action, assessments, losses, damages, liabilities (whether
absolute, accrued, contingent or otherwise), costs and expenses, including but
not limited to, interest, penalties and attorneys' fees and expenses
(collectively, "DAMAGES"), asserted against, imposed upon or incurred by the
Buyer Group or any member thereof, directly or indirectly, by reason of or
resulting from or relating to any of the following (but in any event excluding
the Assumed Liabilities):
-35-
<PAGE>
(i) liability and obligation of either of the Selling
Parties;
(ii) misrepresentation or breach of warranty or covenant
or agreement by either of the Selling Parties made or contained in this
Agreement or in any certificate, document, writing or instrument furnished or to
be furnished to the Buyer under this Agreement;
(iii) failure to comply with any bulk sales or similar
laws applicable to the transactions contemplated hereby; and
(iv) litigation or other claim of any nature whatsoever
arising from acts, failures to act or events which occurred prior to the time of
the Closing including, without limitation, (A) Environmental Conditions and (B)
claims for product failure or defect (including but not limited to claims for
personal injury, property damages and breach of warranty) which relate to any
product manufactured or sold prior to the date hereof.
(b) The Buyer and Unidigital shall indemnify, defend and hold
harmless the Seller and any parent, subsidiary or affiliate thereof and all
directors, officers, employees, agents and consultants of the foregoing
(collectively, the "SELLER GROUP") from and against all Damages asserted
against, imposed upon or incurred by the Seller Group or any member thereof,
directly or indirectly, by reason of or resulting from or relating to the
Assumed Liabilities.
10.2 CERCLA. Nothing contained in this Agreement shall
------
be deemed a waiver of the right of the Buyer to maintain a private party cost
recovery action under the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq.
------
10.3 Notice and Defense of Claims. The Selling Parties'
-------------------------------
obligations and liabilities hereunder with respect to claims resulting from the
assertion of liability by the Buyer or third parties shall be subject to the
following terms and conditions:
(a) Notice. The party seeking indemnification hereunder
(each, an "INDEMNIFIED PARTY") shall give prompt written notice to the party
from whom indemnification is being sought (each, an "INDEMNIFYING PARTY") of any
claim or event known to it which does or may give rise to a claim by the
Indemnified Party against the Indemnifying Party for which the Indemnified Party
believes it is entitled to indemnification pursuant to this Section 10 of this
Agreement, stating the nature and basis of said claims or events and the amounts
thereof, to the extent known, and in the case of any claim, action, suit or
proceeding brought by any third party, a copy of any claim, process or legal
pleadings with respect thereto promptly after any such documents are received by
the Indemnified Party. Such notice shall be given in accordance with Section 12
hereof.
-36-
<PAGE>
(b) Third Party Claims or Actions.
-----------------------------
(i) In the event any claim, action, suit or proceeding
is made or brought by any third party against the Indemnified Party, with
respect to which the Indemnifying Party may have liability for Damages under
this Section 10 of this Agreement, the Indemnifying Party shall, at its own
expense, be entitled to participate in and, to the extent that it shall wish,
jointly and with any other indemnifying party, to assume the defense, with
independent counsel reasonably satisfactory to the Indemnified Party, provided
that in assuming the defense of any such third party claim, action, suit or
proceeding, the Indemnifying Party acknowledges in writing to the Indemnified
Party that the Indemnifying Party shall thereafter be liable for any Damage with
respect to such claim, action, suit or proceeding.
(ii) If the Indemnifying Party elects to assume control
of such defense or settlement, they shall conduct such defense or settlement in
a manner reasonably satisfactory and effective to protect the Indemnified Party
fully; the Indemnifying Party and its counsel will keep the Indemnified Party
fully advised as to its conduct of such defense or settlement, and no compromise
or settlement shall be agreed or made without the written consent of the
Indemnified Party. In any case, the Indemnified Party shall have the right to
employ its own counsel and such counsel may participate in such action, but the
reasonable fees and expenses of such counsel shall be at the expense of the
Indemnified Party, when and as incurred, unless (A) the employment of counsel by
the Indemnified Party has been authorized in writing by the Indemnifying Party,
(B) the Indemnified Party shall have reasonably concluded that there may be a
conflict of interest between the Indemnifying Party and the Indemnified Party in
the conduct of the defense of such action, (C) the Indemnifying Party shall not
in fact have employed independent counsel reasonably satisfactory to the
Indemnified Party to assume the defense of such action and shall have been so
notified by the Indemnified Party, (D) the Indemnified Party shall have
reasonably concluded and specifically notified the Indemnifying Party either
that there may be specific defenses available to it which are different from or
additional to those available to it or that such claim, action, suit or
proceeding involves or could have a material adverse effect upon it beyond the
financial resources of the Indemnifying Party or the scope of this Agreement, or
(E) the Indemnifying Party fails to conduct such defense or settlement in a
manner reasonably satisfactory to protect the Indemnified Party fully. If clause
(B), (C), (D) or (E) of the preceding sentence shall be applicable, then counsel
for the Indemnified Party shall have the right to direct the defense of such
claim, action, suit or proceeding on behalf of the Indemnified Party and the
reasonable fees and disbursements of such counsel shall constitute Damages
hereunder.
(iii) If the Indemnifying Party does not elect to assume
the defense of any such claim, or if they fail to conduct said defense or
settlement in a manner reasonably satisfactory to protect the Indemnified Party
fully, the Indemnified Party may engage independent counsel selected by the
Indemnified Party to assume the defense and may contest, pay, settle or
compromise any such claim on such terms and conditions as the Indemnified Party
may determine. The reasonable fees and disbursements of such counsel shall
constitute Damages hereunder.
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<PAGE>
(iv) The Indemnified Party and the Indemnifying Party,
as the case may be, shall be kept fully informed of such claim, action, suit or
proceeding at all stages thereof whether or not such party is represented by its
own counsel.
10.4 Cooperation. The parties hereto agree to render to
-----------
each other such assistance as they may reasonably require of each other and to
cooperate in good faith with each other in order to ensure the proper and
adequate defense of any claim, action, suit or proceeding brought by any third
party. Where counsel has been selected by the Indemnifying Party or by the
Indemnified Party pursuant to Section 10.3, the Indemnifying Party or the
Indemnified Party, as the case may be, shall be entitled to rely upon the advice
of such counsel in the conduct of the defense.
10.5 Confidentiality. The parties agree to cooperate in
---------------
such a manner as to preserve in full the confidentiality of all confidential
business records and the attorney-client and work-product privileges. In
connection therewith, each party agrees that (a) it will use its best efforts,
in any action, suit or proceeding in which it has assumed or participated in the
defense, to avoid production of confidential business records and (b) all
communications between any party hereto and counsel responsible for or
participating in the defense of any action, suit or proceeding shall, to the
extent possible, be made so as to preserve any applicable attorney-client or
work-product privilege.
10.6 Right of Offset. The Buyer may offset any and all
---------------
Damages owed by the Selling Parties to the Buyer Group pursuant to this Section
10 against any Cash Consideration, Accounts Receivable Proceeds or Earnout
Payment due to Seller hereunder. Neither the exercise of nor the failure to
exercise such right or to give notice of a claim under the Escrow Agreement
shall constitute an election of remedies or limit the Buyer in any manner in the
enforcement of any other legal or equitable remedies that may be available to
the Buyer. Unless the parties can agree as to the amount of a reserve to be held
from those sums due Sellers hereunder, pending the resolution of an unliquidated
claim against Buyer for which Seller is entitled to indemnification hereunder,
the amount of such reserve shall be arbitrated pursuant to Paragraph 6.6 hereof.
11. Notices. Any notices or other communications required
-------
or permitted hereunder shall be sufficiently given if in writing (including
telecommunications) and delivered personally or sent by fax or other wire
transmission (with request for assurance in a manner typical with respect to
communications of that type), federal express or other overnight air courier
(postage prepaid), registered or certified mail (postage prepaid with return
receipt requested), addressed as follows or to such other address of which the
parties may have given notice:
To the Seller: Peter X(+C) Limited
130 Beekman Street
New York, NY 10038
Attn: Peter Ksiezopolski
Tel. No.: (917) 749-7812
Fax No.: (___) ___-_____
-38-
<PAGE>
With a copy to: Feldman Grodeck
3 ADP Boulevard
Roseland, NJ 07068
Attn: Richard A. Feldman, Esq.
Tel. No.: (973) 535-0900
Fax No.: (973) 535-9070
To the Buyer or Unidigital: Unidigital Inc.
229 West 28th Street
New York, New York 10001
Attn: Mr. William Dye,
Chief Executive Officer
Tel. No.: (212) 244-7820
Fax No.: (212) 244-7815
With a copy to: Buchanan Ingersoll Professional
Corporation
500 College Road East
Princeton, New Jersey 08540
Attn: David J. Sorin, Esq.
Tel. No.: (609) 987-6800
Fax No.: (609) 520-0360
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date delivered, if delivered personally or by wire
transmission; (b) on the next business day after mailing or deposit with an
overnight air courier; or (c) five business days after being sent, if sent by
registered or certified mail.
12. Successors and Assigns. This Agreement shall be
------------------------
binding upon and inure to the benefit of the parties hereto and their respective
heirs successors and assigns. Neither the Seller nor the Buyer may assign all or
a portion of its rights and obligations hereunder without the prior written
consent of the other party, except that the Buyer may assign all or a portion of
its rights and obligations hereunder to an Affiliate of the Buyer, provided that
the Buyer shall remain liable for the performance of the Buyer's obligations
under this Agreement. Any assignment in contravention of this provision shall be
void.
13. Entire Agreement; Amendments; Attachments.
-----------------------------------------
(a) This Agreement, all Schedules and exhibits hereto, and
all agreements and instruments to be delivered by the parties pursuant hereto
represent the entire understanding and agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior oral and written
and all contemporaneous oral negotiations, commitments and understandings
between such parties except as expressly provided herein. The Buyer and the
Seller, by the consent of their respective Boards of Directors, or officers
authorized by such
-39-
<PAGE>
Boards, may amend or modify this Agreement, in such manner as may be agreed
upon, by a written instrument executed by the Buyer and the Seller.
(b) If the provisions of any schedule or exhibit to this
Agreement are inconsistent with the provisions of this Agreement, the provisions
of the Agreement shall prevail. The exhibits and schedules attached hereto or to
be attached hereafter are hereby incorporated as integral parts of this
Agreement.
14. Expenses. Except as otherwise expressly provided
--------
herein, the Buyer and the Seller shall each pay their own expenses in connection
with this Agreement and the transactions contemplated hereby.
15. Governing Law. This Agreement shall be governed by
-------------
and construed in accordance with the laws of the State of New York, without
reference to conflicts of laws rules or principles.
16. Section Headings. The section headings are for the
-----------------
convenience of the parties and in no way alter, modify, amend, limit, or
restrict the contractual obligations of the parties.
17. Severability. The invalidity or unenforceability of
------------
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
18. Counterparts. This Agreement may be executed in
------------
one or more counterparts, each of which shall be deemed to be an original, but
all of which shall be one and the same document.
19. Currency. Unless otherwise indicated, all dollar
--------
amounts referred to in this Agreement are in United States funds.
20. Waiver. The rights and remedies of the parties to
------
this Agreement are cumulative and not alternative. Neither the failure nor any
delay by any party in exercising any right, power, or privilege under this
Agreement or the documents referred to in this Agreement will operate as a
waiver of such right, power, or privilege, and no single or partial exercise of
any such right, power, or privilege will preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (a) no claim or
right arising out of this Agreement or the documents referred to in this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party,
(b) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given, and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement or the documents referred to in
this Agreement.
-40-
<PAGE>
21. Ambiguity in Drafting. Each party shall have been
-----------------------
deemed to have participated equally in the drafting of this Agreement and the
agreements contemplated hereby and any ambiguity in any such contracts shall not
be construed against any purported author thereof.
[SIGNATURE PAGE FOLLOWS]
-41-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
(Corporate Seal) SELLER:
ATTEST: PETER X(+C) LIMITED
/s/Kathy Wright By:/s/Peter X. Ksiezopolski
- ----------------------------- ---------------------------------
Assistant Secretary Name: Peter X. Ksiezopolski
Title: President
SHAREHOLDER:
/s/Peter X. Ksiezopolski
--------------------------------
Peter X. Ksiezopolski
(Corporate Seal) BUYER:
ATTEST: UNISON (NY), INC.
/s/Peter Saad By:/s/William E. Dye
- ----------------------------- ------------------------------
Secretary Name: William E. Dye
Title: Chairman of the Board
(Corporate Seal)
ATTEST: UNIDIGITAL INC.
/s/Peter Saad By:/s/William E. Dye
- ----------------------------- ------------------------------
Assistant Secretary Name: William E. Dye
Title: Chief Executive Officer
-42-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated financial statements at February 28, 1999 and is
qualified in its entirety by reference to such financial statements. Earnings
per share information has been presented to conform with the requirements of
SFAS No. 128, Earnings Per Share.
</LEGEND>
<CIK> 0001003934
<NAME> Unidigital Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Aug-31-1999
<PERIOD-START> Sep-01-1998
<PERIOD-END> Feb-28-1999
<EXCHANGE-RATE> 1
<CASH> 453,000
<SECURITIES> 0
<RECEIVABLES> 25,119,000
<ALLOWANCES> (723,000)
<INVENTORY> 0
<CURRENT-ASSETS> 35,747,000
<PP&E> 31,180,000
<DEPRECIATION> 14,254,000
<TOTAL-ASSETS> 111,711,000
<CURRENT-LIABILITIES> 79,801,000
<BONDS> 0
0
0
<COMMON> 52,000
<OTHER-SE> 24,081,000
<TOTAL-LIABILITY-AND-EQUITY> 111,711,000
<SALES> 34,356,000
<TOTAL-REVENUES> 34,356,000
<CGS> 17,310,000
<TOTAL-COSTS> 17,310,000
<OTHER-EXPENSES> 12,770,000
<LOSS-PROVISION> 31,000
<INTEREST-EXPENSE> 2,770,000
<INCOME-PRETAX> 1,506,000
<INCOME-TAX> 682,000
<INCOME-CONTINUING> 824,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 824,000
<EPS-PRIMARY> 0.16 <F1>
<EPS-DILUTED> 0.16 <F2>
<FN>
<F1> Represents basic earnings per share in accordance with SAFAS No. 128,
Earnings Per Share.
<F2> Represents diluted earnings per share in accordance with SFAS No. 128,
Earnings Per Share.
</FN>
</TABLE>
